Contractor pay?

[Bunk]

Thanks everyone for the replies. Forgive me but still slightly confused about take home pay. Im going to do a really simple example, could you confirm to whether the theory is correct?

Weekly gross income = £1000
Directors Salary = £100
Expenses = £150
Profit = £750 (1000-100-150)
CP tax = £150 (20% of £750)
Dividens = £600
Take home pay = £100 (salary) + £600 (dividend) + £30 (20% CP tax saving) = £730

You're just about there but possibly for the wrong reasons.

Think of it this way:

You pay the expenses first out of your own pocket so you start £150 down.

-£150 (expenses)
+£100 (salary)
+£600 (dividend)
+£150 (reimbursed expenses)
=£700

As opposed to:
-£150 (expenses)
+£100 (salary)
+£720 (dividends)
=£670

The difference is that in the second example the expenses aren't reimbursed by your company so they're coming out of your post-tax personal income, as opposed to pre-corporation tax company income. This is why the benefit is only the amount of corporation tax you're saving on the expenses, ie £30.

[325i]

The £30 isn't yours - it's the company's..

So how do i get this myself from the company?

The example works down the the profit for dividends line.

Your take home pay would be £850 (£100 salary, £150 expenses, £600 dividend). This assumes the expenses were paid personally and then reimbursed of course.

On that basis, it seems like the more expenses I claim the better? If i bought a laptop for £150 from my personal account, your saying that I can reimburse this amount and effectively get a free laptop?


Really confused!

[Bunk]

So how do i get this myself from the company?



On that basis, it seems like the more expenses I claim the better? If i bought a laptop for £150 from my personal account, your saying that I can reimburse this amount and effectively get a free laptop?


Really confused!

It's not free! You still pay £150 for it. Where do you think the money to reimburse the expense comes from?

[stek]

So how do i get this myself from the company?



On that basis, it seems like the more expenses I claim the better? If i bought a laptop for £150 from my personal account, your saying that I can reimburse this amount and effectively get a free laptop?


Really confused!

No!

The more expenses you claim the less money is in ur Ltd, the less you have for bench time etc. You might get the money in your personal pocket, fine but then YOUR company loses that money and you spunked £150 for a laptop you might not even have wanted.

You need to wear two hats - 325i the employee and 325i the company. The most you ever save by spending is 20% if if you're spending for no business reason you won't even get that. Just a bigger CT bill.

[325i]

You're just about there but possibly for the wrong reasons.

Think of it this way:

You pay the expenses first out of your own pocket so you start £150 down.

-£150 (expenses)
+£100 (salary)
+£600 (dividend)
+£150 (reimbursed expenses)
=£700

As opposed to:
-£150 (expenses)
+£100 (salary)
+£720 (dividends)
=£670

The difference is that in the second example the expenses aren't reimbursed by your company so they're coming out of your post-tax personal income, as opposed to pre-corporation tax company income. This is why the benefit is only the amount of corporation tax you're saving on the expenses, ie £30.

Thanks, that makes sense. So that shows my take home is £700, so why are the calculators and people saying its £850?

[Brett at Nixon Williams]

It's not free! You still pay £150 for it. Where do you think the money to reimburse the expense comes from?

Correct, you will have paid £150 to a third person and hence be down £150 to begin with.

Putting this back in the example, £850 take home, less £150 spent initially = £700 effective take home pay.

Brett

[mudskipper]

Thanks, that makes sense. So that shows my take home is £700, so why are the calculators and people saying its £850?

Your take home is £850. But you're £150 down before you start, so the net effect is £700.

Reread all the posts. And the guides. And talk to an accountant. There is no free money. (Well there is if you're on flat rate VAT, but let's not confuse the issue...)

[Bunk]

There is no free money. (Well there is if you're on flat rate VAT, but let's not confuse the issue...)

Too late.

[stek]

Thanks, that makes sense. So that shows my take home is £700, so why are the calculators and people saying its £850?

Because to tempt you into their 'scheme' they include as income the reimbursement of the £150 you've already spent personally. It is 'income' but they neglect to point out you've already spent £150 to incur the claimed expense.

[325i]

Big thanks to everyone, i think I have finally got my head round it.

Lastly, how often can i reimburse expenses to my personal account, i presume i can do it on a monthly basis?

All this talk of free money, am i correct in saying that claiming business miles may get you free money? If driving is costing you less than 45p per mile than this is effectively free money?