Rate rise but still take home same amount

[TykeMerc]

Sounds like you are agreeing with me on the fact that, being tax efficient, a 400 pd contractor takes home the same as a 1000 pd one. I don't get the condescending responses from other posters since my question was valid and accurate.

The condescension springs from it being rather a basic question that, if you think about it, has a fairly obvious answer.

Tax codes ignored the upper rate tax bands kick in at the same levels irrespective of your earnings potential, taking a lowish salary and dividends to be tax efficient is a constant.

[mudskipper]

Sounds like you are agreeing with me on the fact that, being tax efficient, a 400 pd contractor takes home the same as a 1000 pd one. I'm fully aware that the business benefits long term. I was enquiring about the benefit to the employee. I don't get the condescending responses from other posters since my question was valid and accurate.

If what you take home goes above the higher rate tax threshold, then you pay extra tax. Certain things (charity donations, pension contributions etc) offset tax, so if you're doing those you can take home a bit more. The condescending answers are because it seems pretty obvious, and it's surprising when someone running a business and coping with PAYE, VAT, expenses, corporation tax etc. hasn't understood the most basic tax rules.

[heyya99]

If what you take home goes above the higher rate tax threshold, then you pay extra tax. Certain things (charity donations, pension contributions etc) offset tax, so if you're doing those you can take home a bit more. The condescending answers are because it seems pretty obvious, and it's surprising when someone running a business and coping with PAYE, VAT, expenses, corporation tax etc. hasn't understood the most basic tax rules.

Fair enough, my question was pretty basic but my aim was to find out how I can get more funds out of my company without incurring high tax. I already pay a high pension and do not have a partner so looks like I am doing the most I can.

I have spoken to my accountant on this issue but getting a second opinion is valuable.

[TheCyclingProgrammer]

Sounds like you are agreeing with me on the fact that, being tax efficient, a 400 pd contractor takes home the same as a 1000 pd one. I'm fully aware that the business benefits long term. I was enquiring about the benefit to the employee. I don't get the condescending responses from other posters since my question was valid and accurate.

I suppose because, all other things being equal, it's kind of obvious. The tax efficient salary/dividend split is the same regardless of your rate, but the extra income does open up other potential avenues for extracting income.

I'm not really sure what you're trying to ask.

[TheCyclingProgrammer]

Fair enough, my question was pretty basic but my aim was to find out how I can get more funds out of my company without incurring high tax. I already pay a high pension and do not have a partner so looks like I am doing the most I can.

I have spoken to my accountant on this issue but getting a second opinion is valuable.

Given your circumstances, you're probably doing everything you can reasonably do. Keep building up the reserves. You'll either need them one day (house deposit maybe) and be willing to pay the extra tax hit or you'll have a nice little low tax windfall when you close the company down.

Your accountant will give you a definitive answer. His opinion will always be more valid than any response you get here, even from other accountants, as he/she is the one who knows your financial situation best.

[heyya99]

The reason for my thread is that I've been contracting about 2 years now and I'm trying to reflect on the success of it, whether it's worth doing long term or if I should return to perm.

[eek]

The reason for my thread is that I've been contracting about 2 years now and I'm trying to reflect on the success of it, whether it's worth doing long term or if I should return to perm.

If you don't know the answer to that question return to Perm...

[jmo21]

The reason for my thread is that I've been contracting about 2 years now and I'm trying to reflect on the success of it, whether it's worth doing long term or if I should return to perm.

Unless you have a particularly low rate, are likely not to work the usual max 46 weeks in the year, or could get a very high permie salary, then contracting is going to win.

These are the numbers you should be looking at to decide whether it will be worth it.

Obviously some of those numbers are not guaranteed so it can be difficult to predict.

[heyya99]

Unless you have a particularly low rate, are likely not to work the usual max 46 weeks in the year, or could get a very high permie salary, then contracting is going to win.

These are the numbers you should be looking at to decide whether it will be worth it.

Obviously some of those numbers are not guaranteed so it can be difficult to predict.

Contracting seems to be a good gig for long term planning. I realistically am not going to see the big benefit until I close my company and take the cash.

[vwdan]

Contracting seems to be a good gig for long term planning. I realistically am not going to see the big benefit until I close my company and take the cash.

But this isn't true - having money sat in the bank is a whole world better than not having it. You could take six months off work and continue to draw the same money, you could bolster your pension or as has been said, you could take the hit on the >40% tax bracket and simply start taking more out.

I'm really struggling to understand your Point of View here - if you want to increase your monthly income, simply start taking more from the company and accept the tax.

And in pure numbers alone, many of would struggle to get a permie role that pays anywhere near what contracting does for same work. Obviously there's much more to it (i.e., lack of guaranteed work, no benefits etc) but if you have the skills and can find the work (Which it sounds like you can), it seems to me contracting is always going to win in purely financial terms.