If you're a contractor and pay yourself a salary then you'll get taxed 65.8%

[titan]

I'm politely wandering if you had a liquid lunch before posting? Or maybe I did, since I'm the only one who appears to see a problem with this.

The 40% tax band starts at £32,010 of taxable income, in other words, given the personal allowance of £9,440 it starts at £32,010 + £9,440 = £41,450 of income.

12% employee NI on earnings above £7,755 up to £41,450, after which it drops to 2%. So you do not pay 12% employee NI and 40% tax on any chunk of income.

I was thinking exactly the same and was confused only because nobody else seems to have realized this. I too think the max you pay iss 55.8% (40 + 2 + 13.8). Still, not saying in any way that this is not a significant chunk to be parting with!

[IR35 Avoider]

For comparison with what you could pay out by other means, the percentage needs to be of "cost to employer" (i.e. salary + employer NI) rather than just salary. So it's (40% + 2% + 13.8%) / (100% + 13.8%) = 49%.

In comparison £100 of company profit would become £80 after corporation tax, pay dividend of £80, with tax credit that's £80/90% = £88.88, higher rate tax of 32.5% * £88.88 = £28.88 leaves you with £88.88 - £28.88 = £60, so 40% tax.

A pension contribution will ultimately be taxed at 0%, 15%, or 30%, on average, depending on whether at the time it is taken the income falls in the personal allowance, basic rate or higher rate bands. (25% tax-free lump sum, so for basic rate tax is 20% * 75% = 15%, for higher rate tax = 40% * 75% = 30%.)

[moggy]

I hope the poster owns the company, as if not they they may well be out of a job, once they have finished the website of course...

[TheFaQQer]

Speaking with HMRC I have been told that what they expect is someone to take a salary appropriate to the role they are fulfilling, with dividends being taken out of what remains i.e. company profit.

The amount of work I do on an average day, £7k salary is too much.