I’m confused, can anyone help me with maths

[PoxiLoxi]

I can’t do the maths...


I’ve worked as a contractor before and made a complete mess of things financially. I’ve now been offered a contract outside IR35 with a day rate of 550 however I do have an existing large debt with HMRC to pay off at the rate of 1500 per month, plus other personal expenses.

I worked 48 weeks last year as a contractor and plan to continue to do so should I accept the role.

In order to service my HMRC debt at the current rate and continue to pay into the household expenses I would need to withdraw 6k per month from the business. However, I need to ensure I don’t withdraw more than I’m allowed in dividends otherwise this constitutes a business loan. Which I have to pay back at the end of the financial year.

If I withdraw 6000 per month, 666 of which is tax free salary and the remaining 5334 is the dividend, at the end of the tax year what will my self assessment liability be. My understanding is that I need to put 25% away of my dividend to cover this, but I don’t want to do this from what I take home, but by what’s in the business account. I also then have to cover my corp tax.

I’m completely lost as to whether I can have 6000 free and clear from the business each month and still have enough left at the end of the year to cover the corp tax liability, the self assessment liability, and presumably 6 months on account payments for the following tax year?

Any maths/tax whizz out there who can help with this. If I go into this I need to ensure I don’t end up with the same mess I’m in now.

i could just go through an umbrella company and pay PAYE each month?

I’m trying to decide whether it’s worth all the hassle and would I be significantly better off contracting, going via an umbrella or just staying in full time employment and renegotiating my payment plan with HMRC.


Thanks

[NotAllThere]

Let me spell this one out in big bold red letters.

Y O U
N E E D
A N
A C C O U N T A N T

It's far too risky at this stage to do it yourself. Seriously. Spend the money. You are in a hole; it's best to stop digging.

[northernladuk]

Let me spell this one out in big bold red letters.

Y O U
N E E D
A N
A C C O U N T A N T

It's far too risky at this stage to do it yourself. Seriously. Spend the money. You are in a hole; it's best to stop digging.

This. You are in a mess because you did something wrong first time and your response is to ask a bunch of random contractors questions that have a serious impact on your lifestyle? Not the best approach to your financial situation.

NAT's suggestion is the only one you should be taking away from this.

[northernladuk]

Just to add. If you are looking for the max figure to take out every month it's going to leave nothing in your warchest. That means when the gig ends you will have zero income coming in and only your tax money to keep you afloat which, if spent, will put you in an even worse position.

[eek]

Let me spell this one out in big bold red letters.

Y O U
N E E D
A N
A C C O U N T A N T

It's far too risky at this stage to do it yourself. Seriously. Spend the money. You are in a hole; it's best to stop digging.

Let me add this

The calculations you needed to do are incredibly simple

The fact you aren't able / willing to do them yourself tells me you need an accountant

However you also need to reduce your expenditure a bit if you are paying HMRC £1500 a month - because what you need to pull out of the company to give yourself £6000 a month is going to cost you a heap load of tax.

You really do need to keep your personal expenditure (including HMRC bill) below £4,000 a month not £6000.

[luxCon]

At those monthly income you create a large tax liability that you may well need an increase in income to pay for which I fear you have lost the sight of .

I think at 550 a day you are living beyond your means.

[Snooky]

I agree with all the others about you needing to speak to someone who deals with finances for a living, i.e. an accountant.

However, if your likely income less your genuine unavoidable outgoings really doesn't leave enough to pay HMRC the monthly amount you've agreed, you can also go back to them (with actual figures) explaining that you can no longer afford that monthly amount and ask to negotiate a longer settlement period with a lower monthly rate, even temporarily. They're fairly pragmatic and are also legally obliged to try and do what they can to avoid debtors going bankrupt, so they may agree. Of course it means you'll end up paying more in the end because the outstanding debt attracts their eye-watering interest rate.

My advice, FWIW - take a long hard look at your expenditure and cut it to the bone. If that means selling your fancy car and downgrading to a cheapo older runaround, or giving up your golf club membership, or whatever the heck costs £4.5k a month, do it. Because you can guarantee if you go to HMRC pleading poverty and they see luxuries on your outgoings, they'll just tell you to do one.

[Craig@Clarity]

I can’t do the maths...


I’ve worked as a contractor before and made a complete mess of things financially. I’ve now been offered a contract outside IR35 with a day rate of 550 however I do have an existing large debt with HMRC to pay off at the rate of 1500 per month, plus other personal expenses.

I worked 48 weeks last year as a contractor and plan to continue to do so should I accept the role.

In order to service my HMRC debt at the current rate and continue to pay into the household expenses I would need to withdraw 6k per month from the business. However, I need to ensure I don’t withdraw more than I’m allowed in dividends otherwise this constitutes a business loan. Which I have to pay back at the end of the financial year.

If I withdraw 6000 per month, 666 of which is tax free salary and the remaining 5334 is the dividend, at the end of the tax year what will my self assessment liability be.

Thanks

Based purely on the figure above, you need to ensure you have profit after corporation tax of £5334 each month in order to declare and pay that dividend. Your self assessment tax bill based on £666 salary a month and dividends of £5334 a month would be £9,739.75 at the end of the tax year. In addition to this, you'll need to pay another half of that upfront in January and the other half in July as payments on account. My general advice would be to set aside your tax money in a personal savings account every time you tax a dividend out so you don't fall short come January and July. In short, you'd need to set aside £1,623.29 out of the £6k you take out leaving £4,376.71 to spend freely each month.

I can’t do the maths...

My understanding is that I need to put 25% away of my dividend to cover this, but I don’t want to do this from what I take home, but by what’s in the business account. I also then have to cover my corp tax.

Thanks

See above. You should set aside your tax money each month from the money you draw out to cover yourself for when tax becomes due in January and July.

In very basic terms dividends in the basic rate tax band is at 7.5%, in the higher rate tax band 32.5% and in the additional rate 38.1%. The dividend tax rate of 25% was before 6 April 2016 (5 years ago).

I can’t do the maths...


i could just go through an umbrella company and pay PAYE each month?

Thanks

If you go with a brolly, you get paid a net wage at the end of the day knowing that all tax and NI is paid so no nasty surprises. I've had clients go this way or go permie as that's what they prefer and/or are comfortable with it. Contracting is not for everyone but with guidance from the right firm, discipline and planning can put you on a clearer path.

Others have mentioned above that you should get an accountant. Great advice. It does still mean you have a responsibility to ensure you're disciplined enough though.

[Whorty]

i could just go through an umbrella company and pay PAYE each month?

I’m trying to decide whether it’s worth all the hassle and would I be significantly better off contracting, going via an umbrella or just staying in full time employment and renegotiating my payment plan with HMRC.

Given the mess you're in, personally, I'd go brolly as it least what you get is paid net and you know what's in your bank account is yours. You can then give HMRC what they need and the balance is for your own expenditure and savings for a rainy day.

Keep it simple. Less surprises that way!

[eek]

Given the mess you're in, personally, I'd go brolly as it least what you get is paid net and you know what's in your bank account is yours. You can then give HMRC what they need and the balance is for your own expenditure and savings for a rainy day.

Keep it simple. Less surprises that way!

Given the need to pay HMRC £1500 a month I don't think that's an option once employer NI is deducted.