Pretty often, someone tells us about a new activity that they've started engaging in to make a bit of money on the side. They wonder whether they should channel the income through the limited company they make their main living from, or if they should keep it separate.
In most cases, there are three big picture factors to think about.
First, there's a fundamental elegance to having all of your income going through the same vehicle. One of the benefits of a limited company is that you can chuck all sorts in revenue in, and draw your income out in a steady manner - that way, you can plan your income and tax bills, smooth out variable business profits over the years, and perhaps build up a safety cushion for the future. If you have multiple personal sources of income, things are a bit trickier. So the default is to stick everything through the company, and it's virtually always possible to do that.
However, then you have to think about VAT. If your company is VAT registered, its new sideline is going to be VATable too. That's fine if it's a business-to-business sideline - most likely the customers won't care if you add VAT to your prices. If it's business-to-consumer, though, the customers will care - the VAT is a real cost to them. So you're going to have to suck it up and pay the VAT out of the selling price, meaning 1/6th of the income going straight to HMRC before even thinking about corporation tax. So, for a B2C sideline, you might decide to operate as a sole trader. If you want to do that, though, the businesses really need to be kept separate (i.e. separate customer invoices, getting paid into a different bank account, keeping separate records, placing separate orders for any materials etc), to reduce the risk of HMRC successfully arguing that it's really just one big VATable business.
Finally, there's the trading allowance. For the last few years, sole traders have been able to claim a flat deduction of £1,000 in place of actual costs in order to work out their taxable profits. Your limited company won't get that deduction, it must claim actual costs, and maybe there aren't many of those. So you might want to keep the sideline as sole trader income; if it's under £1,000 you don't have to report it to HMRC at all.
Obviously, there are other factors too - and if it's not a sideline but a real business you'd certainly consider it in more detail. But for anyone trying at present to boost their income just a little bit, those are the first three things we'd think about. And that's a conversation best had before the sideline kicks off - if you've already agreed a contract or sale with a customer as a limited company, you can't just change your mind later!
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