So I've gotten myself all muddled up... lol Thankfully we live in a country where the tax man is friendly & helpful! They've helped me sort out my issues. So currently, I am registered as a sole trader - as I need to be self-employed or earning a wage to get my free childcare hours & also I'm actually doing some child minding, or will be in the coming months, and need somewhere to pay tax on that.

I have a limited company, which is what I initially did (unknowingly to me at the time, this does not technically qualify you as self-employed), but am not getting a wage as I don't make enough to pay myself. Not yet anyway. 

So going forward I think I'll keep the ltd company, and put all the web design work through it as I think it'll be easier to keep all the expenses & stuff separate. My question is, I know that a limited company, the director can take dividends of up to £2000 a year tax-free, out. And I'm pretty sure that that money is then not subject to any personal tax... but I wanted to double check. You don't count that 2k in your yearly personal tax allowance, do you?

BTW, it's really tough out there for working mums 

I'm not 100% sure as I don't do tax submissions for an LTD, but I'd imagine you'd declare things like directors dividends when filing your tax return, then HMRC would take that into account when calculating your tax bill.

I have a Ltd company and can confirm that you can take out upto £2000 per year as a tax-free dividend.  I agree with @rallport.  Get an accountant, it's the best money I ever spent.  Also get VAT registered then you can save lots of money on expenses, for most people in tech you'll earn well above the VAT threshold anyway so it would likely be a legal requirement.

I'm with Maslins which also gets me access to FreeAgent which is a brilliant accounting platform.
If anybody wants to join Maslins then tell them Robert Smith from RW Smith Software recommended you.
I've been using them for 2 years and constantly fire "dumb" questions to them and they're so helpful in answering them for me.

Edited May 20, 20197 yr by rbrtsmith

Hi Stooly!

If you'd prefer to remain 'self-employed' you can do. You'll just have to do a personal tax return detailing the income you generated, instead of a company tax return.

Even though you have a LTD entity you don't have to use it - unless you'd prefer to reduce your personal liability by trading as LTD. 

As you said; the tax free dividend allowance you can take is up-to £2k from a business, then it's 7.5% Tax over and up-to £34,500. There are more bands above this (all less than standard personal tax bands). Just remember to factor in the various other taxes associated with the ltd status business.

For example: corporation tax (tax on end-of-year profits). Dividends don't count as expenses (unlike PAYE) so there's 19% corp tax on that dividend. 

One benefit of being self-employed or a director on PAYE is that you'll be paying National Insurance which is tied to then state pension later on. If the take home pay (in the bank) is less than minimum earnings £12,500 HMRC technically pay your NI for you.

Hope that's of help?

As @rallport said above - a good accountant will help with all this. We certainly couldn't do it without their assistance.

The amount of tax you pay becomes pretty steep when you enter the higher tax brackets.  Dividend tax rises from 7.5% to 32.5% and you also have the 19% corp tax to pay.