Temp to Perm Tax Questions...

[darossi]

Hello

I have been working as a contractor, via an umbrella company for 6 months. I have accepted a permanent role at the company I have been contracting at. The contract ends Fri 7th June and I start the perm job on Monday 10th June.

Under the contract, I get paid around the 14th of the following month. For example, I will get paid for work performed during May on or around 14th June. However, I will get my first wages from the permanent job on or around 25th June.

Does this mean that the wages I receive on 25th June will be taxed at 40% right away? Also, do I have to let the tax office know that my income is going to drop from contractor levels down to a more 'normal' permanent wage? Or will it all even out itself anyway?

To complicated matters more... I've been told I will get paid for the final week of the contract (first week of June) in June, rather than July. So effectively, I'll get paid 3 times in June....1) Payment for work done during May, 2) 3 weeks of permanent wage, 3) 1 odd week of contract work from the first week of June.

I'm trying to workout how much tax I'll pay on the additional incomes but am failing miserably.... any advice appreciated!!!

Thanks

[stek]

Are you sure you were cut out to be a contractor?

[stek]

But to answer the question(s) - PAYE sorts itself out so don't worry...

[Craig at Nixon Williams]

The amount of tax that you pay will depend upon your tax code, if it is a normal code (944L) then your allowances are given to you in equal portions and accumulate throughout the year. Tax is calculated on your cumulative earnings to date and then the tax already paid in previous months is deducted to arrive at the amount payable in the current month.

Say for example you have an annual salary of £60,000, paid in monthly installments of £5,000, the tax for June would be worked out as follows:

Your cumulative earnings to date would be £15,000 (60000*3/12) and your tax allowances for for June (month 3) would be:
Personal Allowance: £2,360.00 (9,440*3/12)
Basic Rate: £8,002.50 (32,0210*3/12)
Higher Rate: £4,637.50 (15,000-2,360-8,002.50)

You would then be charged tax on your earnings as follows:
£2,360.00 @ 0% = £0
£8,002.50 @ 20% = £1,600.50
£4,637.50 @ 40% = £1,855.00
Total tax payable to date = £3,455.50

If your cumulative tax paid to date (prior to June) was say £2,000 then you would have £1,455.50 deducted from your June payslip.

Hopefully this makes enough sense for you to work it through with your own figures, feel free to give me a shout if you want though!

Craig

[darossi]

Are you sure you were cut out to be a contractor?

What do you mean by that?

[northernladuk]

Are you sure you were cut out to be a contractor?

It seems not

[darossi]

It seems not

Helpful.

[NotAllThere]

Helpful.

Sometimes. That's why we let him stay.

If you've only had one contract and it was for your current client, be aware that you cannot claim travel and subsistence.

[LisaContractorUmbrella]

Your umbrella company has been your employer - the people offering the permanent role will become your new employer. Once your final payment has been processed, your umbrella company will issue a P45 which is a record of your income and tax paid to date. Your new employer will then take the P45 and your earnings and tax paid to date will be taken into account when they make the first payment to you. What rate of tax you pay is dependent on your projected annual earnings within that pay period.