What to charge within IR35

[RichardS]

Hello,

I am considering setting up an Ltd and taking on work with a company based in the EU. I am curious what I'd need to charge to pay myself a salary of £70k a year.

Initially I thought I'd just be able to charge the company £70k+£9k(employers NIC?). Then I run the £70k through PAYE which subtracts the NI and income tax that gets paid to my account. I am not interested in pension for this example.

I would have thought the above example would be fairly easy to find an answer to, but I find conflicting information. Any help appreciated!

[ladymuck]

Why set up a Ltd Co for an inside IR35 gig?

[Lance]

Why set up a Ltd Co for an inside IR35 gig?

it's not necesarily an inside IR35 contract.
Paying full PAYE is a perfectly viable option regardless of IR35.
It also allows for greater flexibility with expenses.

Having said that.... I'm not sure WHY anyone would do it. Might as well be self-employed.

[ladymuck]

it's not necesarily an inside IR35 contract.
Paying full PAYE is a perfectly viable option regardless of IR35.
It also allows for greater flexibility with expenses.

Having said that.... I'm not sure WHY anyone would do it. Might as well be self-employed.

Yes, very fair point. There is the scope to claim business expenses.

Does seem more admin for minimal return when, as you say, it could be done as self-employed on an SATR.

[malvolio]

Expenses depend on D&C within the contract; they may not be claimable (assuming the OP understands that this is a tax deduction, not the whole cost). Either way the LtdCo will incur some costs, if only banking (what about currency conversions, come to that), annual CoHo returns and Accounts, so a bit of leeway wouldn't be a bad idea.

However £70k a year based on what? 52 weeks a year like a permie? 47-ish weeks a year like most contractors can manage even if they work all year? 7 months a year like I used to average? Constant billing or deliverables based? What is the going rate for the services you intend to deliver?

Sorry, but it is an unanswerable question without a lot more detail. But just for argument's sake, I'd go with £70k + 30% gross income and work it out from there.

[RichardS]

Thanks for the answer everybody, I'm currently looking into setting up a sole-trader.

The plan is to charge the company I'd work for on a monthly basis, as if it was a perm roll. I.e. £5833 (70k/12) + any additional taxes and costs, such that the £5833 could be paid as salary to me.. I would also not have any other expenses, travel costs, etc.

As a sole-trader, I understand that if I invoice £5833, I will get that full amount into my account (no taxes drawn). I will then be able to pay it out as salary by subtracting 1. Income tax, 2. NIC2 and 3. NIC4. Using this calculator Self-employed Income Calculator. Free Advice. StepChange that gets me £4216.78 into my own account. So £1616.22 in taxes and NIC in total. Is this correct? Since I am invoicing a foreign company, does this mean nobody is really paying the "Employer's NIC contribution" that exists for employees on payroll in an Ltd? Are there any obvious costs or taxes I'm missing, in addition to the currency conversions, accountancy fees if I don't do them myself (I've ordered a book on it), and banking fees?

[ladymuck]

Thanks for the answer everybody, I'm currently looking into setting up a sole-trader.

The plan is to charge the company I'd work for on a monthly basis, as if it was a perm roll. I.e. £5833 (70k/12) + any additional taxes and costs, such that the £5833 could be paid as salary to me.. I would also not have any other expenses, travel costs, etc.

As a sole-trader, I understand that if I invoice £5833, I will get that full amount into my account (no taxes drawn). I will then be able to pay it out as salary by subtracting 1. Income tax, 2. NIC2 and 3. NIC4. Using this calculator Self-employed Income Calculator. Free Advice. StepChange that gets me £4216.78 into my own account. So £1616.22 in taxes and NIC in total. Is this correct? Since I am invoicing a foreign company, does this mean nobody is really paying the "Employer's NIC contribution" that exists for employees on payroll in an Ltd? Are there any obvious costs or taxes I'm missing, in addition to the currency conversions, accountancy fees if I don't do them myself (I've ordered a book on it), and banking fees?

You'll receive everything you invoice and then you'll put those earnings onto your annual SATR, less any expenses, and pay it the January following the end of the tax year (i.e. for the 2020/21 tax year, you would pay in January 2022). You are wise to assume that the £1616 (if that is what it is) is not yours and you should get into the habit of putting that aside so you don't have to scrabble around looking for the money.

Do keep track of any costs you incur in the course of delivering the contract. Broadband, phone bill, any special software you have to buy. As a registered SE person you can claim these - there's a section on the SATR form for them. This will ease the tax burden a little (not hugely but it all helps).

[Yuri F]

For the same purely technical net financial result on annual basis (assuming 252 working days, 14K gross salary as director, 1K expenses, flat VAT) equivalent not in scope contracting rates are:
£400/day (+VAT) normally needs +29% on a perm basis (gross salary=£130K) or +45.5% via umbrella to get £79K net after tax (sal + war_chest optimized {intertemporal allocation} divs incl. 2K allowance)
£450/day +29.4% (£146.7K) / +46.1% / £88.7K
£500/day +30.7% (£164.7K) / +47.8% / £98.4K
£550/day +32.0% (£183.0K) / +49.4% / £108.1K
£600/day +33.1% (£201.2K) / +50.6% / £117.8K
£650/day +34.0% (£219.5K) / +51.8% / £127.5K
£700/day +34.8% (£237.8K) / +52.7% / £137.2K
£750/day +35.5% (£256.0K) / +53.5% / £146.9K
£800/day +36.1% (£274.4K) / +54.3% / £156.5K
[contracting] [+GrossSalary% (£ GrossSal)] [+Umbrella] [£ Net after tax]

But obviously it's a bit less tbh if other perks considered (stability, 1M holiday and other non-financial.. {expenses, gym, etc.})
p.s. also umbrella will take something off .. above is not adjusted for it..
p.p.s. prob missed some minor details, but generally deviation shouldn't be significant anyways..

[RichardS]

You'll receive everything you invoice and then you'll put those earnings onto your annual SATR, less any expenses, and pay it the January following the end of the tax year (i.e. for the 2020/21 tax year, you would pay in January 2022). You are wise to assume that the £1616 (if that is what it is) is not yours and you should get into the habit of putting that aside so you don't have to scrabble around looking for the money.

Do keep track of any costs you incur in the course of delivering the contract. Broadband, phone bill, any special software you have to buy. As a registered SE person you can claim these - there's a section on the SATR form for them. This will ease the tax burden a little (not hugely but it all helps).

Perfect, thank you Ladymuck.