Take home when earning 400/day

[northernladuk]

fraud?

Only if you are caught.

[Lance]

fraud?

Yes.
Caveat: IANAL

[northernladyuk]

I had a client reject one of my invoices because I had a typo in my VAT number and they checked it against the database and found that the number didn't correspond to my company

Different client at the same time paid their (much bigger) one without checking it though.

Same here. Lesson learnt I got my next gig with the HMRC VAT unit.

[NorthWestPerm2Contr]

Ok, I'll show you how to figure it.

First let's assume 18 days a month. Some months you'll have more, others less, if you take a week holiday, say. If you think you are going to work more than 18 days, change that number.

18x£400 = £7200 average monthly revenue.

£800 expenses, gives you £6400 monthly profit before salary or tax.

You can pay yourself £680 / month without any National Insurance liability. So do that, it reduces your corporation tax. If you pay yourself more salary, it will cost you more tax.

So now you have £5720 monthly profit. Corporation tax on that is £1087. That amount goes into a business savings account, it's untouchable, you are going to need it later. Now, your company has £4633.

Assuming you have no other income, you get the personal allowance plus the dividend allowance before paying any tax on dividends. That's £16500, or £1375 / month. So having paid £680 salary, you can give yourself a £695 dividend without any tax hit. You're now at £1375 take home, with no tax hit, and your company still has £3938.

Unless you are in Scotland, you have £45K in the basic rate band. That's £3750 / month. But you've already taken £1375, so you can take another £2375 in dividend, in the basic rate band. That will be taxed at 7.5% dividend tax, so will cost you £178 / month, so your take home out of that basic rate band dividend is £2197.

You've now taken £3750 out, at a tax cost of £178, for a take home of £3572. Your company still has £1663. You can retain this in the company for a reserve in case you have a time where you are out of contract, or when you just decide to take a month or two off to go pretend to be rich. Or, you can pay yourself the rest in dividends. If you pay yourself the rest, you'll pay dividend tax of 32.5%, since you are now in higher rate band. That will cost you £540, but you take home another £1123. So now you have a total take home of £4695.

That's 65% of your original £7200, but that's probably not the best way to calculate it. If the £800 / month expenses are real, then that means you never really should have included them, in calculating your percentage. You aren't really looking at £7200, you are looking at £6400 a month. So you are taking home about 73% of your £6400 operating profit.

If you can live comfortably without going into higher rate band tax, most people would say it probably makes more sense to retain the last £1663 in the company, at least until you've got a nice reserve built up for down time. These percentages are based on the assumption that you'd pay that out in dividends, rather than retain it.

Very useful, helpful post. Probably the most useful I have seen in General ever!

Am I in the right forum?

Edited: ahhh now moved over to Business.