For the last couple of weeks I have been setting up a new company for all of my developer projects. I have been putting off doing this for a while and continued as a sole trader but now seems like the right time.
If you are thinking of releasing something to make some money on the side, there are few reasons why you might want to set up a company.
Assuming you are going down the limited company route the main benefit is limited liability. If someone sues you for something you have produced it is the company that is liable not yourself so you aren't going to lose your house over it.
The other benefit is tax. This will vary greatly depending on where you live but in the UK earning income in a company is more tax efficient if you are already a high earner which if you are a software developer you likely are.
If you earn over £50,270 a year in the UK then you are in the higher rate tax bracket and all your income is taxed at 40%. Between £100k and £125k you lose your personal allowance, so all earnings here are effectively taxed at 60%!
Obviously if you take a salary from your company you will still be taxed the same, but you could leave the money in the company and take a salary at a later date (e.g. when you get laid off due to AI). You also have the option of paying into your pension directly as well.
The downside is running a limited company comes with a lot of additional administration work, and you will likely need an accountant too.
The other reason for going the company route is that I am going to be releasing an app to the Apple App Store in the next few months. If you publish an app as an individual and sell in the EU you need to list your address, email and phone number which is a privacy nightmare. Strangely as a company you only require an email and a phone number. On the off chance that my app does incredibly well then I will avoid being taxed quite so much.
So why wouldn't you set up a company?
Generally it is recommended to wait until you are earning over £30k a year from your business to register a company, but this is assuming it is your sole income. If you are a higher rate taxpayer, then it can be beneficial on a lot less than that.
I wouldn't bother registering until you have at least made your first £1000 as this is tax-free under the trading allowance anyway.
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I am slowly getting back into YouTube with hopefully a lot more videos coming next year. If you are looking to start a side project to earn some income but don't know where to start, then check out my latest video Building Apps: Mobile, Desktop or Web.
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