tax + NI issues post April 2006

[IR35 Avoider]

Re: That cap

Just noticed on IR web-site that the cap is going to start at 1.5M and is already scheduled to rise to £1.8M by 2010.

[rootsnall]

Re: That cap

IR35 Avoider - I think it was original post that started the thread !? There is quite a bit on the web about it all. I'm planning on one last year ( said that a few times ! ) of low salary and high dividends before going this route. I guess more info will emerge once April 2006 comes around. I originally thought an umbrella would be the way to do it but now I'm thinking I'll keep my Ltd Co instead.

[IR35 Avoider]

Re: That cap

NI savings are going to be worthwhile.

You can say that again.

In 2005/2006, once you've earned £6915, the tax wedge on an extra pound of salary is (22p income tax + 11p employee NI + 12.8 employer NI) / (£1 salary + 12.8p employer NI) = 45.8/112.8 = 40.6%.

A higher-rate tax payer has a marginal wedge on income above £37,225 of (40p + 1p + 12.8p) / (£1 + 12.8p) = 53.8/112.8 = 47.7%.

[ASB]

Re: That cap

Of course if one is not caught by IR35 then the NI is less of an issue. Personally I have for the last 20 odd years used low salary high dividends, just enough NI to keep the state pension (Which has actually been nil for a few years).

I'm still not convinced that 70k pa in retirement is necessarily a lot though. (I doubt I'll make it). Obviously it depends upon ages, but assuming a 30 year timeframe and 4% inflation that oh so huge 70k is equivalent to 21.5k. Okay, not bad but not untold riches.

Pensions also are not a benevolant tax regime, although there is a tax advantage if moving from a higher rate to a lower rate in retirement. If this doesn't happen they are boradly nuetral.You get relief on contributions, but not on the final income. Thus it is as well to at least consider using post tax income to fund retirement savings - although this is of course not without issues such as CGT if the asset profile is changed.

The real saving comes form NI, here we are lcuky because we are able to control it better. Although thouse outside IR35 already have that luxury.