75% - 80% take home pay - really? help pls!

[Freshie]

hi all,

I recently started contracting and whilst I was making my decision came across a lot of websites that stated 'when contracting, most contractors generally take home 75%-80% of their contract rate...'

I then set up my company, got started and had a chat to my accountant and he tells me I have to pay 21% corporate tax (fine, knew about that) and 25% dividend tax for anything above approx. £37,000... which is consistent HMRC's website... but that does not equal 75%-80% take home pay...! am I missing something?? please help!

thanks

[Alan @ BroomeAffinity]

What is your rate? Are you married? If so how much does your spouse earn? Depending on the answers to these questions, 75% is entirely possible, even up to about £95-£100K.

You can earn c£43k without paying higher rate tax (the tax on dividend you mentioned) as can you spouse. So, depending on the spouse's earnings, £86k of GROSS income can be extracted from the company without higher rate tax. This will obviously go down proportionately if your spouse earns anything. If you aren't married or your spouse is already a higher rate tax payer (or very nearly) then 75% is pretty well impossible without deferring serious amounts of income.

You an also score about 4% if you are on the VAT flat rate scheme.

[ChimpMaster]

hi all,

I recently started contracting and whilst I was making my decision came across a lot of websites that stated 'when contracting, most contractors generally take home 75%-80% of their contract rate...'

I then set up my company, got started and had a chat to my accountant and he tells me I have to pay 21% corporate tax (fine, knew about that) and 25% dividend tax for anything above approx. £37,000... which is consistent HMRC's website... but that does not equal 75%-80% take home pay...! am I missing something?? please help!

thanks

I would say that 65 - 70% is more the norm. Anything above 75% is likely to be due to a scheme involving loans or Forex payments, which most would now strong recommend against.

As the Just1morethen makes clear, % of take home pay is largely down to your personal circumstances.

[Fred Bloggs]

I acheive over 75% retention but I am an old fart and pay a lot of my turnover into my SIPP which helps a lot with the % retention. Mrs Bloggs also takes divis too. Ultimately, I suppose this is deferring rather than avoiding tax, but it works for me.

[Danielsjdaccountancy]

hi all,

I recently started contracting and whilst I was making my decision came across a lot of websites that stated 'when contracting, most contractors generally take home 75%-80% of their contract rate...'

I then set up my company, got started and had a chat to my accountant and he tells me I have to pay 21% corporate tax (fine, knew about that) and 25% dividend tax for anything above approx. £37,000... which is consistent HMRC's website... but that does not equal 75%-80% take home pay...! am I missing something?? please help!

thanks

Over the life of the company this is quite achievable, and probably year on year depending on if you have a high day rate. PM me if you like and I'll prove it to you.

[pmeswani]

Over the life of the company this is quite achievable, and probably year on year depending on if you have a high day rate. PM me if you like and I'll prove it to you.

I don't know if the OP has the ability to PM yet. But would it be something you could share with us at all?

[Alan @ BroomeAffinity]

@pmeswani, see my post above. Add to that, deferral of income and and ESC C16 extraction then you're probably there.

[Danielsjdaccountancy]

@pmeswani, see my post above. Add to that, deferral of income and and ESC C16 extraction then you're probably there.

Agreed that's the lines of it, with the flat rate saving and expenses it can all help push up your take home.

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[ChimpMaster]

@pmeswani, see my post above. Add to that, deferral of income and and ESC C16 extraction then you're probably there.

Ah you mean the ESC16 route that they're about to make utterly useless?

[Alan @ BroomeAffinity]

Ah you mean the ESC16 route that they're about to make utterly useless?

Yup. But the OP asked how its done, we answered. How its done post-budget is another matter, but I'm sure I'll figure it out.