Income tax paid by paye person who has a company

vargoo

Just wondering about something someone said to me,

Say a person works for Tesco making €25000 a year so pays income tax at 20%.

If that person sets up a company, say fixing phones from a building in town or selling something online while continuing to work in Tesco.

What then is that persons Income tax rate OR does an effective tax rate apply?

Calahonda52

The company income, after expenses and company tax = profit after tax, is not the person's income until it is paid out to him.
[However if it's a close company then there are rules to mitigate, by way of surcharge, against the profit being sheltered from Income tax by being left in the company].]

wiggle16

In addition to Calahonda's answer:

If a person made €25000 working for Tesco, and is therefore under the threshold for paying tax at 40%

and

If the same person also made €25000 fixing phones or running an online shop, which by itself is also under the 40% threshold

then

does that person escape the marginal rate of tax being applied to their income?

ie, can you have two streams of income being taxed separately and thereby avoid some of it being taxed at 40%.

The answer is no, you cannot have two streams of income being taxed separately under two different systems (PAYE and self-assessment).

The way the tax system gets around this is that when the person declares the income they received from self-employment (fixing phones/online shop) they are also obliged to declare their PAYE income and the tax they have already paid on it. Their income is then assessed in its entirety. When you return income, you are obliged to return income from all sources. To leave anything out, in order to reduce your charge to tax, is tax evasion.

The simple answer to your question is that it doesn't matter. That person still pays tax at the same rate as everyone else and if they don't they are not paying enough tax. At its simplest.