How I pay 12% Tax

[dude69]

Nice attempt.

Assuming you are paying Flat Rate VAT of 12% in the first year, the VAT would be £16215.

No corporation tax is due on the PAYE rebate so a bit extra there.

Only 50% of the laptop would be offset against tax in the first year.

"Paying 12%" tax assumes you do not fall foul of the Revenue with regards to the section 660 legislation they are trying to inflict and assumes you only take dividends upto the higher rate thresholds.

Our friends at the Revenue have also been known to attack "larger" salaries paid to non working spouses.

Even if you were fully compliant with current rules and taxes AND took all the funds out you would keep 71.3% of the turnover (£115,000) leaving you with over £82000 to spend as you please and paying 28.7%in taxes. Not bad I would say!

Yeah, you're right, must have pressed the wrong button on the calculator with the VAT. I thought the 12% was a bit low....

The laptop actually cost £2035, so there is a VAT rebate on it as well (above £2k allowance), but I didn't go into that.

Anyway, £16,215 in VAT, £135,375 received. Costs: £12,980. So £106,180 in profit, of which £250 not taxable. So £20,174.20 CT to pay, giving an effective income of £98985.80, which is 13.9% tax.

A bit higher, but still beats PAYE :-).

S660a is not a problem yet, but I'm aware of it for when the Lords decide.

[dude69]

Out of interest, what does one have to do to get a daily rate of 500?

What I do, pays around 275. With the current client, getting that much was a struggle.

tim

work for an investment bank. And cut out the middle man.

[Pondlife]

Out of interest, what does one have to do to get a daily rate of 500?

What I do, pays around 275. With the current client, getting that much was a struggle.

tim

SAP or Proj Mgmt stuff at the mo

[dude69]

Interesting....but....

You are not really comparing like with like. In the Ltd Co scenerio you are looking at Company money, in the PAYE scenario you're looking at personal money.

A couple of expenses you seem to have left out of the Ltd Co scenario
- accountants fee
- insurances

Also, some things you are likely to get as a perm not catered for in the Ltd Co scenario:
- pension contributions
- life insurance
- private health care

I also think 46 weeks working a year is an overestimate. There are about 250 working days in a year and in a perm job probably 25 days vacation, so more realistic to work on 225 days for a like-for-like comparison.

My father is an accountant so that's free. The insurance is minimal does cut the profit by about 0.3% I guess, not too major though.

I didn't have life cover at my last job, and declined the private health cover because I didn't want to pay 40% of its cost as it wasn't worth it to me as I'm unlikely to use it.

[dude69]

SAP or Proj Mgmt stuff at the mo

just standard City asp.net here. No special business knowledge. The agents putting standard people forward (good .NET, not gurus) at £450 + 15% fee. I cut out the middle man, so no fee on me.

[VectraMan]

Assuming you can get away with that and don't withdraw all the money, which you haven't factored into your calculation. If you take all the money as divs and don't do the S660 fiddle, then by my very rough calculation you have an extra £17K to pay in tax, and that increases your magic number to 26%. I think.

[Ivor1]

work for an investment bank. And cut out the middle man.

Easily hit £500 a day in the city without the middleman espiasally at the moment, loads of work out there £500 to £600 aday in the city.
But then again its all relative ie cost of living, £370k for a crappy 3 bedroom in a nice'ish area.

Being a BA in the city is where the money is relative to the amount of work you do, £600 - £650 aday.

[xoggoth]

That's nothing! I have a cast-iron scheme to get the first £30k of earnings totally tax free.

[IR35 Avoider]

I would worry about S660A if I were you, but as you say you are aware, I won't say to much. (But do you know that if the court case is lost, or even if it's won but you are caught because your circumstances are slightly different, that any dividends you pay now are vulnerable to tax for several years to come? If caught you might have to pay higher-rate tax on the past six years worth of wifely dividends? I only ask because you seem to be saying that S660a is something you only intend to worry about looking forward.)

Rather than retain earnings in the company, why not bung the excess in your pension. That way the company is worth nothing, so if HMRC do ever unexpectedly stick you for IR35 the company will have nothing to pay them with. (I don't know if this will work - just an idea to run past your accountant.)

[TheMonkey]

I have come to the conclusion that paying full whack tax via PAYE and charging clients more is the solution to the problem which won't cause you any anal soap-on-a-rope problems with HMRC. Currently my company end of year is targeting a profit, with all debts and invoices settled, of £0.33! Looking at that my magic number is around 35% which isn't so bad when you actually look at the incoming cash into my personal account every payroll run.

I think complexity ultimately leads to problems, especially with tax. My solution is to charge more!