Setting up a limited company for contract work

[jrshubrook]

Hello,

This is my first post so I hope this is helps people who are in need of the same information.

I am looking to set up a limited company. I have been offered a day rate of £120.

To make the most from Tax and NI exemptions I have opted to set up a ltd company. Now for the figures I just wanted to share this to check that the arithmetical accuracy or if i've missed anything out.

The main aim was to work out monthly how much I would earn after tax in total from wage from the limited company and the dividends received.


So on a monthly calculation I think I have figured out the monthly wage as follows (based on 2018/19 tax year:

Income:
£120 a day x 21 days worked in total for April would be gross of £2520 with a pro rata per annum amount of £30240.

Expenses to LTD company:
Wages: £680.33 (based on £8164 per annum - no NI or tax to be paid)
Travel expenses: £623.30
Total: £1303.64

Gross profit: £1216.37
Corporation tax at 20% of £243.27

Leaving net profit to be paid as dividends of £973.09 monthly and per annum of £11677.08.

Total taxable income allowance for tax year 18/19 will be 11850 (personal allowance) + £2000 dividend allowance = £13850.

adding up my personal income which would be the wage of £8164 (wage) + £11677.08 (dividends) = 19841.08 would leave me £5991.08 over the allowance and would be taxed at 7.5% (dividend basic tax rate) per annum I would be taxed £449.33 equaling a monthly tax of £37.44.

This would then leave me with £935.65 after dividend tax has been taken.

so my personal net income for April 2018 would be wage (680.33) + dividends (£935.65) = £1615.98


Sorry for the long post I just cant seem to find anything wrong with it but I assume I've missed something out and its possibly illegal in some way so just wanted to check with anyone that would know this.

Look forward to any responses.

Thanks

Jay

[northernladuk]

Sorting out your accounts online with a bunch of stranges isn't going to work really. You need to get proper advice.

To that end, for such a low rate I suspect you might be better off with an umbrella. I would suggest you speak to Lucy and ContractorUmbrella. They will run your figures through their model and give you the number you need. They can also get Dolan off his sunbed and run them against LTD company so you have a comparison.

Make your decision from there.

Spouting numbers on here will just go on and on and on until you've completely lost the plot.

[TheFaQQer]

Expenses to LTD company:
Wages: £680.33 (based on £8164 per annum - no NI or tax to be paid)
Travel expenses: £623.30
Total: £1303.64

Gross profit: £1216.37
Corporation tax at 20% of £243.27

Leaving net profit to be paid as dividends of £973.09 monthly and per annum of £11677.08.

Your expenses look a little low - what about insurance costs or accounting or phone or premises?

The calculations only hold true if you are in work every month, because if you aren't then some of your expenses will be fixed and so your profit margin goes down.

Personally, I'd not bother with a limited company at that rate. I would look for a trustworthy, reliable, legitimate umbrella company and work through them as an employee while you get more experience to increase the rate. There are a number of risks and legal responsibilities to being a company director (one reason why I have D&O insurance), and if you aren't aware of what they are (or don't want the hassle of running a company) then an umbrella is almost certainly the right way to go.

[Lance]

£120 a day is way too low to consider a LTD IMO.

For a start you're gonna be inside IR35 as I doubt that for that rate you'd not be under the total direct control of your client (and if you're good enough to not be controlled then you're not very good at negotiating a rate).

Also your numbers assume you'll work every working day there is and that every month has 21 working days (hint: they don't). You're looking at an average wage (UK average, not IT average) by the time you factor in the other elements.

So I'd suggest umbrella or see if the client can do you a fixed term contract.

[radish2008]

£120 a day is way too low to consider a LTD IMO.

For a start you're gonna be inside IR35 as I doubt that for that rate you'd not be under the total direct control of your client (and if you're good enough to not be controlled then you're not very good at negotiating a rate).

Also your numbers assume you'll work every working day there is and that every month has 21 working days (hint: they don't). You're looking at an average wage (UK average, not IT average) by the time you factor in the other elements.

So I'd suggest umbrella or see if the client can do you a fixed term contract.

I've highlighted the bulltulip for you OP so you can ignore it.

[Lance]

I've highlighted the bulltulip for you OP so you can ignore it.

I beg to differ.
I agree that it's entirely possible to be outside IR35 for a low rate as the rate is nothing to do with it. But in practical terms such a low rate implies low skills, which implies a bum on seat resource to be controlled (SDC and MOO). No it's not 100%, but I'd put £100 on it.

[Alan @ BroomeAffinity]

From experience with a load of clients on a low rate in the past, it’s not worth the hassle for the minimal savings. Go umbrella.

[northernladuk]

I beg to differ.
I agree that it's entirely possible to be outside IR35 for a low rate as the rate is nothing to do with it. But in practical terms such a low rate implies low skills, which implies a bum on seat resource to be controlled (SDC and MOO). No it's not 100%, but I'd put £100 on it.

I'd go with this. That rate sounds more like temping than contracting... but each case should be taken on it's merits and the usual diligence done I guess.

[jrshubrook]

£120 a day is way too low to consider a LTD IMO.

For a start you're gonna be inside IR35 as I doubt that for that rate you'd not be under the total direct control of your client (and if you're good enough to not be controlled then you're not very good at negotiating a rate).

Also your numbers assume you'll work every working day there is and that every month has 21 working days (hint: they don't). You're looking at an average wage (UK average, not IT average) by the time you factor in the other elements.

So I'd suggest umbrella or see if the client can do you a fixed term contract.

Thanks for you response.

From my understanding which is fairly little at the moment as you could probably tell. I am definitely outside IR35 because I do have complete control. No one is paying any tax or NI on my behalf or employers NI.

Basically the company I will physically be working at have gone to a IT-recruitment consultancy, I have a friend who works for the recruitment consultancy that has offered me the role at £120, obviously i'm not born yesterday the company (IT recruitment consultancy) who im basically going through take there own cut (20%-30%) with the remaining of £120 being paid to me. It's not ideal but its a fairly entry level role and I haven't got the most experience and without taking an even lower rate wouldn't be able to get the experience to increase my rate.

On that basis I would have thought that setting up a ltd company would be a way to maximize my own income from the same rate as I would from setting umbrella to avoid more tax, NI contributions and employer contributions as shown above?

[radish2008]

I'd go with this. That rate sounds more like temping than contracting... but each case should be taken on it's merits and the usual diligence done I guess.

So it doesn't matter what it sounds like to you both. It's simply your opinion. There is no connection between rate and D&C.