Estimated read time: 3 minutes
As the UK’s tax burden rises, you can reap the rewards of being your own boss
It’s no secret that the UK’s tax burden is now at its highest level since the Second World War, equivalent to 40% of GDP. Along with inflation and the cost-of-living crisis, everyone is feeling the pinch. As income tax thresholds are frozen, many are also feeling the icy blast of fiscal drag!
So, could becoming self-employed be the answer to boosting your income?
Employment status
If you have only ever been an employee, you will have had tax and national insurance contributions deducted at source through the PAYE (pay as you earn) system by your employer.
This system is very rigid, as a taxpayer you have no choice and no discretion about what and when you pay.
As self-employed consultants, Nexa’s lawyers enjoy the organisational freedoms and flexibility of being their own boss but there are also advantages when it comes to tax.
Our tax specialist Femi Ogunshakin takes up the story…
“Working with Nexa as an independent contractor, there are several differences in the way you are taxed when compared to being an employee. These can enable you to have much more freedom over the money you earn. Depending upon your own circumstances, these may be particularly helpful to you.
For example:
- You control your income. You decide how much to work and how much to pay yourself, so you can respond to changing needs.
- You control the status of your drawings. You can decide to take a smaller percentage as salary and a larger proportion as dividends for example. This would enable you to benefit from different tax rates.
- You don’t need to take an income at all. Again, depending on your circumstances, you may wish to pay some of your income (but generally only up to a limit of £40,000 year) into a pension. Alternatively, you may decide to build up the capital reserves in your service company and use this for a capital purchase later on.
- The rules around expenses are different when you are not subject to PAYE. Generally, there are more opportunities to claim back for business expenses.”
Flexibility is fundamental
Lawyers at Nexa may provide their services through a personal service company (a corporate entity which is entirely at arms’ length from Nexa) but they don’t have to. Depending on what they prefer and what suits their own circumstances, they may engage with us personally.
Last but by no means least…
Over to Femi again:
“The most important thing to remember is that everyone is different, and everyone’s circumstances are different, it’s therefore really crucial to talk to the experts early on and get the right professional advice – it’s always a good (tax deductible) investment!”
Nigel Clark, CEO of Nexa adds:
“Our primary objective is to ensure that the Nexa model operates in compliance with the current legal requirements specified by HMRC while also delivering on our promise of ‘friction free lawyering’. Our consultants always have choice, but are responsible for administering their own companies (if they have them) through which their services are supplied and completing and filing their own tax returns and other corporate documentation.”
Disclaimer
This article is for information purposes only. It should in no way be considered legal advice and no reliance should be placed upon it. All readers are urged to take their own professional tax advice regarding their own specific circumstances.