War Chests

[northernladuk]

I put my war chest into an aldermore business savings account (a whole 1% interest) but it is at least separate.

I am in a similar position (started 6 months ago) and am aiming to leave as much in the business as possible and only take out the same as i needed as a permie (unless april 2016 changes that significantly).
I'd like to keep a minimum of 6 months, but would not stop putting to one side until I got to 12 months at least. last spell of contracting (early 2000) saw me have a spell of 8 months off with no war chest at all (wife was working so mortgage got paid!) and I have no wish to be in that position with no cash again as I am the sole earner!

I am in the lucky position of starting contracting again with a reasonable redundancy package which we still have most of left, so I guess I have about enough for 9-10 months off now.

Personally I'd take the minimum I need for the first gig making sure I use the most efficient levels though, forget the permie salary equivalent. You are not a permie anymore. The second and third gigs can be harder to get than the first so they are the crunch time you need to be ready for.

[northernladuk]

I'd presume at the end of your financial year you'd extract as much as possible for tax purposes (if tax efficient)?

A bit of reasonable budgeting means you could still pull enough out early to keep you ticking over rather than waiting until year end but as I said in the previous post the minimum to live and max the warchest in your first gig.

When you've got a reasonable warchest and more in future years you will flip this process around. It's better to pull the max amount out efficiently right at the beginning of the year and stick it in a higher account rather than wait until the end of the year.

Your accountant will guide you.

[Pherlopolus]

Personally I'd take the minimum I need for the first gig making sure I use the most efficient levels though, forget the permie salary equivalent. You are not a permie anymore. The second and third gigs can be harder to get than the first so they are the crunch time you need to be ready for.

My permie monthly income was also my lowest minimum sustainable income (no real payrise in 10 years and salary erosion), hence the VR and move to contracting. I am taking out the minimum I can get away with (salary + divs, enough to live on and max out my ISA) and the rest stays in "business" for foreseable future.

[northernladuk]

My permie monthly income was also my lowest minimum sustainable income (no real payrise in 10 years and salary erosion), hence the VR and move to contracting. I am taking out the minimum I can get away with (salary + divs, enough to live on and max out my ISA) and the rest stays in "business" for foreseable future.

[Dan@OrangeGenie]

Hi all

I've been contracting for about 3 months now and I'm in the process of saving up a war chest.

I just wanted to see what or where some of the more experienced among you do with your war chests?

Do you save them in your company or personal accounts?

I'll need to have some in company account for ongoing expenses such as insurances, mobile phone and accountancy fees

I'd presume at the end of your financial year you'd extract as much as possible for tax purposes (if tax efficient)?

Also, what's reasonable amount to save up? I'm aiming for enough to cover me for about 3 months.

Thanks

A few questions here.

Are you compliant with IR35? This will determine the size of the potential nest egg available and how much you need to offset for tax.
Are you going to be contracting long term? This will determine if Entrepreneurs relief can be used utilised
Are you willing to operate a pension?
Do you have a nice spread of expenses?
Do you have a spouse? Is there potential for tax saving there?
Set up a separate HIBA for any excess tax saving.

This will give you a better starting point.

[cityben]

A few questions here.

Are you compliant with IR35? This will determine the size of the potential nest egg available and how much you need to offset for tax.
Are you going to be contracting long term? This will determine if Entrepreneurs relief can be used utilised
Are you willing to operate a pension?
Do you have a nice spread of expenses?
Do you have a spouse? Is there potential for tax saving there?
Set up a separate HIBA for any excess tax saving.

This will give you a better starting point.

In answer to your questions

1. Yes, IR35 compliant. Had contract checked and working in that manner
2. Yes, I hope to.
3. I'm not paying into pension yet but hope to start in a few months
4. Expenses are/were initial startup hardware, software etc, subsistence and commuting
5. Yes, company split is 60/40

[unixman]

"Warchest" is just savings so treat it as such. In the best interest account you can find and move it as soon as they drop the rate. Our circumstances all vary but I also pay into a pension straight from the company, and as my outgoings are little, could live for a very long time with no income.

Also leave funds in the Company enough to pay your salary when out of contract.

[Dan@OrangeGenie]

In answer to your questions

1. Yes, IR35 compliant. Had contract checked and working in that manner
2. Yes, I hope to.
3. I'm not paying into pension yet but hope to start in a few months
4. Expenses are/were initial startup hardware, software etc, subsistence and commuting
5. Yes, company split is 60/40

Grow the warchest in the HIBA. The return will come when you close the company at the end of your contracting life through Capital Gains Taxes.

[NibblyPig]

Why do you folks keep so much money in the business? I'd have thought you'd want to take out as much as possible so you can invest it in something useful? You'll get taxed on it presumably anyway when it finally comes out...

[northernladuk]

Why do you folks keep so much money in the business? I'd have thought you'd want to take out as much as possible so you can invest it in something useful? You'll get taxed on it presumably anyway when it finally comes out...

Oh dear.....