Noob question

[obk]

I am sorry if this has been done to death already but being a noob at contracting the wealth of conflicting information out there is confusing me a touch.

The company that have hired me has several other contractors working for them, there are 10 of us in total. During talks it seems that I am the only person taking a normal salary from my company whereas everyone else is taking quarterly dividends and a small monthly wage. I have ran this by my accountant and he said that I should not take dividends but continue on the path that I am on.

As we have all been hired through the same agency and the contract that we signed is exactly the same for all of us, can I go against my accountant and take dividends or should I take his advice and remain as I am as I feel that I am losing by paying so much tax compared to the others.

Any help would be greatly appreciated.

[thunderlizard]

What reason does your accountant give that your company shouldn't pay a dividend?

[obk]

He says that he is erring on the side of caution as he is unsure whether I fall inside IR35 or not, he says that it could be taken either way.

[The Lone Gunman]

Is your accountant a contracting specialist?
Many non specialists go for salaries as they do not fully understand the consequences of IR35 (if you dont know what that is look it up and come back).
Join the PCG. Get your contract checked out for IR35.
If it is outside then be a business. Small wage and divvies is a legit route for a proper business. Change your accountant if you are still not happy.

It may be that your accountant is right.

You need to know your business. Accept advice, but know where that advice comes from and why. Make up your own mind based on what you have read. Challenge your accountant if you think they are wrong.

Read the noob guides on here and on the PCG. get it straight in your head.

[slackbloke]

I am sorry if this has been done to death already but being a noob at contracting the wealth of conflicting information out there is confusing me a touch.

The company that have hired me has several other contractors working for them, there are 10 of us in total. During talks it seems that I am the only person taking a normal salary from my company whereas everyone else is taking quarterly dividends and a small monthly wage. I have ran this by my accountant and he said that I should not take dividends but continue on the path that I am on.

As we have all been hired through the same agency and the contract that we signed is exactly the same for all of us, can I go against my accountant and take dividends or should I take his advice and remain as I am as I feel that I am losing by paying so much tax compared to the others.

Any help would be greatly appreciated.

The consequences of a large salary versus small salary and dividend is open to debate and most accountants differ on their advice. However, there isn't much just paying salary because you are gaining none of the advantages of having your own limited company, in fact not point having your own company really. Personally, I tell my accountant what I want to do (not the other way round) and I use him for making sure everything is above board.

[thunderlizard]

However, there isn't much just paying salary because you are gaining none of the advantages of having your own limited company, in fact not point having your own company really.

I disagree with that. If you want to treat your company purely as a mechanism to move money from its invoices to your own pocket, you have a point: but the advantages of having your own company go far beyond that. You can use it to hire staff and subcontractors onto your projects; have limited liability; put business expenses through it; all sorts.

[DiscoStu]

I disagree with that. If you want to treat your company purely as a mechanism to move money from its invoices to your own pocket, you have a point: but the advantages of having your own company go far beyond that. You can use it to hire staff and subcontractors onto your projects; have limited liability; put business expenses through it; all sorts.

And it's far easier to get a Makro card

[slackbloke]

I disagree with that. If you want to treat your company purely as a mechanism to move money from its invoices to your own pocket, you have a point: but the advantages of having your own company go far beyond that. You can use it to hire staff and subcontractors onto your projects; have limited liability; put business expenses through it; all sorts.

Well, I was thinking only about your first point, I'm only interesting in getting the maximum money out :-).

[Alan @ BroomeAffinity]

IMO your accountant is being over-cautious but in the end may be correct. If you want to be safe IR35 wise, I would suggest you get a contract review by B&C or Qdos (a quick search on here will sort you out). Once you know whether you are in or out you plan your strategy around this. Remember, there is more to your tax planning than just whipping out all the dosh at the end of the month.

Even if you are inside IR35 there are thing yuo can do to make LtdCo route more attractive than staff or umbrella.

You should probably speak to a specialist.

[chris79]

Correct me if I'm wrong, but why not take the risk of doing salary/dividends?

If you don't get investigated you are quids in.

If you do get investigated but have educated yourself on IR35 and know how to conduct business to appear 'outside', you are quids in.

If you DO get investigated and fail IR35, you have to pay tax back to the taxman plus a small penalty.

Would it not make sense to therefore take the risk as the worst that is going to happen is you give it back to the taxman plus a small fee?


Also in reply to the original questions, YOU are in control of your company, NOT your accountant. You tell the accountant what you want them to do with your money, they don't tell you how they would prefer it. Obviously they can give their professional opinion, but ultimately if you are a limited company, providing a service to a client, and are taking appropriate steps to operate outside IR35 and your contract has the right things/wording (you can get this checked by places like QDOS etc), then there's no reason why you should not be taking small salary + dividends.

It always pays to educate yourself on your company, how it works, how the money works, tax works etc. It's not rocket science, people keep thinking that only accountants can do it or understand it, wrong.. just take a bit of time to investigate it and understand it. I setup mine just over a year ago, I do all my own books, payroll, invoicing, etc.. all self taught, and it's really helped me get to grips with it all. Takes me 10 mins a week max to process everything, and at the end of the tax year it took me maybe 2 hrs to do my payroll year end, etc... (I use sage and they usually have a step by step guide to doing it yourself).

Just on a side note I also have legal insurance so if any investigations regarding tax etc kick off, I have £50k worth of legal cover on tap.

If you don't want the hassle of all this, then either your accountant may end up dictating your operations (as has happened now), or you should go with an umbrella, in which case you'll end up on full PAYE.