It is quite common to have full or part-time employment while operating a limited company, reasons for this can include:
- Running your stealth startup before you have the revenues to go out on your own
- Working a part-time job while contracting via your limited company
- Temporarily on a client’s PAYE scheme for a contract that falls inside IR35
- Working a full-time job while operating a ‘Side Hustle’
For these scenarios we have tried to detail some areas you should consider:
Potential Opportunities
Potential perks may include:
Multiple Salaries & National Insurance
Class 1 NI Contributions are payable in thresholds the first of which includes the Primary & Secondary Thresholds that are currently £823 per month or £9,880 per year, and £758 per month or £9,100 per year, respectively, for the 2022/23 tax year. These are essentially the nil rate thresholds for NIC where you do not pay National Insurance. It is important to note that, unlike tax where a threshold is allocated to a particular individual for a given tax year, NIC thresholds are allocated for each individual employment. This is therefore a potential area to save on national insurance contributions as you are splitting your income between multiple employments (i.e. your job and the PAYE Scheme of your limited company).
Declaring Dividends
It is likely that the payment terms and timing of your part-time employment will be dictated by your employer, but your limited company can remain useful, allowing you to either retain profits in the company or draw down on dividends utilising the more efficient tax rates.
VAT Threshold
The income via your employment does not need to contribute to your mandatory VAT registration. This could allow you to remain or become cheaper to your non-VAT registered customers.
Potential Pitfalls
Some of the possible pitfalls may include:
Employment Contract
It may be advisable to ensure that your employment contract with your part-time employer allows you to run your limited company while holding the position.
Tax Code
It is likely your tax code on your payroll with your employer will change or include items that imply that you have another source of income. It is unlikely your employer would ever question this, but it could be an indicator that you have another employment or contracting role. It is therefore important that you remain upfront and open with your employer from the outset.
State Pension Record (National Insurance)
Whilst you can indeed realise National Insurance savings by splitting your income between part-time employment and your limited company it is important to consider your State Pension Record. At least one of the employments needs to exceed the Lower Earnings Limit for National Insurance of £533 per month or £6,396 per year to ensure you receive a State Pension Record.
Auto Enrolment
Like national insurance splitting your income between multiple employments or via a part-time job and your limited company can have some drawbacks if your income splits drop between the 2 levels below:
- AE Enrolment Trigger – if your payslips from each individual employment drops below the auto-enrolment trigger of £10,000 per year (pro-rated in line with your pay frequency) you could miss out on being automatically enrolled into the pension scheme
- Pensionable Pay – this may not apply if your employer or your workplace pension via your own limited company uses a different type of definition for pensionable pay. However, where they choose to use the statutory auto-enrolment definition of Qualifying Earnings (banded earnings) you could lose out on pension contributions should your income via this employment fall below the Lower Earnings Limit.
If your earnings do drop below the £10,000 per annum but exceed the Lower Earnings Limit, it could be advisable to opt into the pension scheme to utilise your entitlement to your employer pension contributions.
