Once upon a time, people just retired.
You served your 40 or so years for one of the big corporates, and then that was that, it was over.
Now, once they reach financial independence, which for a lucky few is sooner than 40 years, many people are seeking other opportunities to keep their professional status, to retain the contacts, and to keep their mind nimble.
You may well have considered doing something similar yourself.
The most common scenarios are that you’ll set up a consultancy as a side project to your primary career, or that you look at working as a consultant later in your working life as you are winding down to retirement but want to make the most of all your experience.
Another option is to work on ad hoc projects for a former employer once you have retired. In this way, they will benefit from your expertise and corporate knowledge, while you keep your eye in, renew acquaintances with former colleagues, and of course, earn money to supplement your retirement income.
How you structure your consultancy will be subject to your personal circumstances
As you’ll appreciate, given the range of possible scenarios, there is no such thing as a one-size-fits-all solution when it comes to setting up your consultancy from a taxation perspective.
Your circumstances will be unique to you, so how you decide to structure your business will depend on a series of factors, such as:
- The time you are committing to your consultancy
- If you are still working full-time
- Whether you have retired.
The key choice will be to seek expert advice to ensure you have the right structure in place to mitigate taxation as far as possible.
Because of that, it’s important to appreciate that this is only a high-level overview of your options and some key pointers you might want to consider.
As many of our clients eventually aim to relocate to the UK, the following gives an overview of the considerations if you are UK tax resident. In all fairness the Hong Kong situation is much more straight forward.
You can work as a sole trader on a self-employed basis
A good, straightforward option if you’re using your consulting business to supplement your income alongside your full-time employment is to work as a sole trader. Indeed, this is probably the most common way consultants set up their business structure.
As a freelance self-employed consultant, you’ll need to register with HMRC and pay Income Tax and National Insurance contributions (NICs) on your earnings, less any business expenses and allowances.
In the 2024/25 tax year, for the self-employed, Class 4 NICs are charged at 6% on your profits between ÂŁ12,570 and ÂŁ50,270, and 2% on profits over ÂŁ50,270.
If you have no other income, you will be able to earn up to the current Personal Allowance threshold of ÂŁ12,570 (2024/25) without paying Income Tax. Earnings above this level are taxed at your marginal rate of tax.
It’s important to note that sole traders only enjoy limited legal protection, so all business liabilities will also impact you personally. This may have a bearing on your decision about your consultancy structure, subject to the work you are doing.
As a limited company, you can tax-efficiently draw income as dividends
If you set yourself up as a limited company, your personal assets will be kept separate from the company’s liabilities, providing you with limited liability. This could be attractive if you are providing services where the cost of getting things wrong could leave you liable.
You also have more flexibility when it comes to drawing income in a tax-efficient manner.
For example, you could opt to draw a salary at or around the £12,570 Personal Allowance threshold. This would minimise both employee NICs and Income Tax, while, as a limited company, you will only be required to pay a minimal amount of employer’s NICs.
You can then consider drawing any additional income as dividends or other forms of remuneration, subject to the relevant tax rules. Dividends are subject to Dividend Tax, with the rate depending on your marginal rate of Income Tax. In 2024/25, Dividend Tax rates are:
- Basic rate – 8.75%
- Higher rate – 33.75%
- Additional rate – 39.35%.
Furthermore, as a limited company, you may benefit from paying Corporation Tax at a reduced rate of 19% on profits up to £50,000. You’ll be subject to the main 25% rate on profits above that threshold.
If you’re consulting in Hong Kong, it’s important to understand the tax system there
As you will probably be aware, the taxation regime in Hong Kong is more straightforward than that in the UK.
Taxes are uniformly lower than they are in the UK, and there are also a series of allowances and business incentives you may be able to take advantage of.
Because of this, if you’re currently working in Hong Kong and are looking to set up a consultancy alongside your main employment, I would suggest that expert advice in respect of how you structure your business and taxation arrangements is close to being essential.
Corporation tax is much lower at only 16.5% with a lower rate of 8.25% applying on the first HKD 2 million of profits. Although dividends are paid from post-tax profits, the fact that there is no tax on dividends for Hong Kong residents makes this very appealing.
However, this still should be weighed against the alternative of paying yourself a salary from your consultancy company. With many different allowances are available, depending upon the amount of income you expect to earn, this could be more efficient.
And of course, a combination of the two approaches might be optimal.
Get in touch
If you are already working on a consultancy basis, or are planning to, you will likely benefit from expert financial advice, regardless of whether you are in the UK or Hong Kong.
Please contact us by email or, if you prefer to speak to us, you can reach us in the UK on +44 (0) 208 0044900 or in Hong Kong on +852 39039004.
Production
