Contractor Ltd Company, Only 5% expense?

[TykeMerc]

I take your point Mal, but when is it that a company pays contractor to go for a course??? The training was definitely job related so that I could go further in my specialization and get mote money in the next contract. Can't we justify it?

And, if we can only take 5% as expense and then pay taxes and NIs on 95% of the salary with no company benefits (like perms), what is the point in contracting? Am I missing something like Flat Scheme VAT (which will generate 1-2K in an annum)??

Thanks,
Johny.

Nope you're not really missing anything, in effect the government don't want us to be contractors and businesses and they certainly don't want to give us an incentives.

If you're inside IR35 the government and specifically HMRC consider you to be an employee of the client, however the clients, agencies and us as contractors don't.

[expat]

I take your point Mal, but when is it that a company pays contractor to go for a course??? The training was definitely job related so that I could go further in my specialization and get mote money in the next contract. Can't we justify it?

And, if we can only take 5% as expense and then pay taxes and NIs on 95% of the salary with no company benefits (like perms), what is the point in contracting? Am I missing something like Flat Scheme VAT (which will generate 1-2K in an annum)??

Thanks,
Johny.

HMG regards each contract as a separate job: they do not see you as performing a single contracting career, so they do not allow you to spend the proceeds from one contract on getting better qualified for the future.

The point in contracting, at least as far as the money goes, is that you get paid a higher rate, not so much that you get more opportunity to avoid paying tax.

(The main points for me are freedom, variety, and not being an employee. I'd contract if it cost me money).

[johnywalker]

You can deduct travel and subsistence. All other expenses - training courses, accountancy fees etc. come out of the 5% of the remaining. It's all about being fair, you see.

When you say travel, can I take car mileage if I travel to work in car and ticket money if I travel by tube?

And when we take 95% salary, how will we pay Employer NI? Or is it calculated along with the 95%. Normal calculations on a total will only deduct employer NI and paye tax. please clarify

Thanks,
JOhny.

[expat]

When you say travel, can I take car mileage if I travel to work in car and ticket money if I travel by tube?

And when we take 95% salary, how will we pay Employer NI? Or is it calculated along with the 95%. Normal calculations on a total will only deduct employer NI and paye tax. please clarify

Thanks,
JOhny.

You DO need more detail than this, but here's a start:
1. Ignoring IR35 for the moment, your Co pays PAYE as normal, including NICs.
2. To find out whether that is OK or not, you perform this calculation:
a) Co turnover - (allowable expenses) - 5% = deemed salary.
b) tax and NICs on deemed salary.
If the tax + NICs at 2b are greater than those actually paid in 1, you owe the difference.

"allowable expenses" are those trhat would also be allowable for an employee.

[Hex]

The 95% has to cover employer's ni, employees ni, income tax. You get what's left after that lot.

So work get the employer's ni rate. Work out what gross salary together with the employer's ni on it come to 95% of your company's earnings and then you've got your gross salary. Then make the calculations for employee's NI, tax etc.

There are calculators on line that will do this for you. Try http://calculator.contractoruk.com/

[johnywalker]

The 95% has to cover employer's ni, employees ni, income tax. You get what's left after that lot.

So work get the employer's ni rate. Work out what gross salary together with the employer's ni on it come to 95% of your company's earnings and then you've got your gross salary. Then make the calculations for employee's NI, tax etc.

There are calculators on line that will do this for you. Try http://calculator.contractoruk.com/

Thanks. Is it necessary that the contractor itself should take 95% as salary? My question is if I get someone as Office admin or so, who doesn't work anywhere else, can I pay her £6035 as salary thereby not paying any tax or ni on that?

I use the same company for some reselling business as well, which has generated some income. Can I say that the expenses (rent, council tax, mileage etc) are from that portion of sales? (and not from contracting)

Thanks again.
JOhny.

[malvolio]

Thanks. Is it necessary that the contractor itself should take 95% as salary? My question is if I get someone as Office admin or so, who doesn't work anywhere else, can I pay her £6035 as salary thereby not paying any tax or ni on that?

I use the same company for some reselling business as well, which has generated some income. Can I say that the expenses (rent, council tax, mileage etc) are from that portion of sales? (and not from contracting)

Thanks again.
JOhny.

I already answered that once - do you want me to write it all out again?

http://forums.contractoruk.com/627666-post17.html

[pmeswani]

I already answered that once - do you want me to write it all out again?

http://forums.contractoruk.com/627666-post17.html

So the morale of the story is find a decent accountant and let them sort it out for you?

[ASB]

Thanks. Is it necessary that the contractor itself should take 95% as salary?

Absolutely not. It is however necessary that the contractor is taxed on that - i.e. 95% of IR35 caught income.

The company could employ somebody to do some admin or whatever, this *IS* a chargeable expense in terms of the company books. But it does not reduce the amount that the deemed payment will be calculated on.

[malvolio]

So the morale of the story is find a decent accountant and let them sort it out for you?

In his case yes, since he clearly doesn't understand the basics. Of course that also means he's not qualified to judge a "decent" accountant...