How much do you work to the tax brackets when inside IR35?

[youngguy]

I struggled on where to post this one.

Just interested to see how much (if at all) those inside IR35 price their rate or calculate their days based on the tax thresholds.

Last year I kept to under £100k - partly due to salary sacrifice and partly due to working less days - to keep the full personal allowance and steer clear of the 45%.

I've got some options on the table for other inside gigs and so I've been calculating how much an X increase in the day rate translates to £ in my pocket. From what I can tell the difference between Gross and Net between 100 and 125 means I'd be losing more in % terms compared to staying below 100 (and enjoying time off) or landing a gig that took me over 125.

Of course I may be letting the tax tail wag the income dog and talking total tosh!

[Fraidycat]

Due to the personal allowance loss any inside IR35 PAYE between 100K and 125K is taxed at something like 70% (60% income tax, 18% for both the NICS).

If it is Feb or March and I was near 100K already, after paying into pension then I would get to 100K and then I would try and take as much of the rest of the tax year off as possible, as much as the client was ok for me to take.

Currently outside IR35 so not an issue for me.

[eek]

Due to the personal allowance loss any inside IR35 PAYE between 100K and 125K is taxed at something like 70% (60% income tax, 18% for both the NICS).

If it is Feb or March and I was near 100K already, after paying into pension then I would get to 100K and then I would try and take as much of the rest of the tax year off as possible, as much as the client was ok for me to take.

Currently outside IR35 so not an issue for me.

One other solution would be (depending on the umbrella) to delay payments as you approach the £100k figure to a payment date in the next tax year. I can think of a couple of umbrellas (smaller ones) able to do that.

[Fraidycat]

One other solution would be (depending on the umbrella) to delay payments as you approach the £100k figure to a payment date in the next tax year. I can think of a couple of umbrellas (smaller ones) able to do that.

Thats sounds well dodgy. I could see HMRC attacking that.

[ladymuck]

Thats sounds well dodgy. I could see HMRC attacking that.

Delaying income or bringing forward expenses around the tax year end is a common tax planning technique.

It's just not something that your average employee can easily achieve but anyone with a modicum of control over their finances can do it.

[northernladuk]

Of course I may be letting the tax tail wag the income dog and talking total tosh!

You aren't really talking tosh as it's always interesting to know but I definitely think you are looking at it all wrong. Picking gigs to stay under a threshold seems odd. I'd just pick the highest, use any advtanges there is and just be happy. You might be paying extra tax on it but it's still money in your pocket. Remember you are quoting the top figure but really you should be looking at the extra from the previous tax bracket. You are already paying that on much of it so think about the EXTRA tax on that extra money and it looks a lot better. I think you are talking 5% extra as you are paying 40% on some of it anyway aren't you?

It's also entirely possible you may lose the gig later on or go outside in the year so you've left yourself in the lower paying gig for absolutely no reason. IMO long term planning on short term contracting gigs is not always helpful.

Now it's my turn to possible talk utter tosh but are you sure you've got your bands right. You mention staying under 100k and avoid the 45% rate but you are nowhere near it. It's 40% between 50,271 – £150,000 and 45% on £150,000 upwards isn't it? I'm outside so not a clue but just checking.

But either way, it's only 5% extra tax between brackets so I certainly wouldn't be using that as a deciding factor on a gig.

[northernladuk]

Delaying income or bringing forward expenses around the tax year end is a common tax planning technique.

It's just not something that your average employee can easily achieve but anyone with a modicum of control over their finances can do it.

I think this is covered here in a post by Lucy but it's 5 years old.

Hope this helps (with regards to a brolly anyway)...

Section 18 ITEPA 2003

With the exception of some foreign earnings (see EIM42210), money earnings are chargeable to tax in the year they are received (see EIM42201).

Money earnings are treated as received for assessment purposes, and paid for PAYE purposes, on the earliest of the following:

when a payment of earnings is actually made or when a payment on account of earnings is made (see EIM42270)
the time when a person becomes entitled to payment of earnings or a payment on account of earnings (see EIM42290)

Full thread here
https://forums.contractoruk.com/umbr...april-6th.html

[youngguy]

You aren't really talking tosh as it's always interesting to know but I definitely think you are looking at it all wrong. Picking gigs to stay under a threshold seems odd. I'd just pick the highest, use any advtanges there is and just be happy. You might be paying extra tax on it but it's still money in your pocket.

totally fair point. I guess there might be an argument to cull a few days if you just slip over that figure, or if you are happy in a gig you may not move to a new one for an extra £50 a day inside , but extra income is indeed extra income!

You mention staying under 100k and avoid the 45% rate but you are nowhere near it. It's 40% between 50,271 – £150,000 and 45% on £150,000 upwards isn't it? I'm outside so not a clue but just checking.

Yeah that's right but over £100k your personal allowance (12570) tapers off and hits zero at 125k so that has an additional tax impact. Then the 45% kicks in over 150k.

As many of us used to (and likely you still do) stay under the 40% tax bracket, losing the personal allowance and hitting the 45% is not a consideration many of us have possibly had to think about before. Be glad you don't know about it

[eek]

I think this is covered here in a post by Lucy but it's 5 years old.



Full thread here
https://forums.contractoruk.com/umbr...april-6th.html

And because you are the customer of the umbrella it's possible the umbrella may be happy to delay both points (heck it's a selling point for the smaller ones as there is little else to compete on).

when a payment of earnings is actually made or when a payment on account of earnings is made (see EIM42270)
the time when a person becomes entitled to payment of earnings or a payment on account of earnings (see EIM42290)

be asking for the next payment to be done on April 6th hence delaying the entitlement part. The thing to remember here is that can be done elsewhere - it is common for bonuses to be announced and for people to choice when they wish to receive them (in say March or April).

Note this is the exact opposite of what Ian was after on Monday (before he deleted everything). There he was trying to force early payment (which wasn't possible because he wasn't entitled to payment). When I finally looked at his reference it covers the rather niche area mainly related to back payment of equal pay...

[TheDude]

Nobody likes paying 45% tax but my philosophy is that more is more and if I am paying extra tax then maybe people in genuine need won't have to wait as long for an operation or to be homed.