Newbie in contracting

[thugusher]

have you considered whether you are within IR35?

After spending a few hours trying to get a grip on the whole process I keep coming back to this issue - what's the point in setting up a ltd company and then getting investigated and paying a large fine and charges?

I currently work with a 'dodgy' IOM party and am keen to keep within the rules AND maximise retention of my earnings.

It seems a rather depressing situation, in that the revenue service will get you one way, or another

i'm within ir35 as im gonna be in 1 or 2 locations during my contract me thinks

[kanulondon]

Take your company net weekly income (ex VAT) say £1000.

I work approx 46 weeks a year, so say £46,000 company income pa

Take off any legitimate expenses (I just charge mileage allowance) and accountancy fees say £4,000 pa and £1,000 pa respectively

Take off salary say £6,000 (no tax or NI due on this as below threshold)

Leaves £35,000 to pay corp tax on @ 21/22% so £7,525

Leaving £27,475 net dividend (no further tax to pay as this is below the £34,800 tax allowance)

So you would need to allow for £7,525 tax

£7,525 is 16.35% of £46,000.

So you need to keep back 16.35% of your £1000 to pay taxes (but you need to remember that you also have to pay your expenses and fees out of the £1000 as well)


Of course, if your dividends exceed the higher rate tax threshold you will need to keep back more money.

HTH

IANAA (this advice is worth what you paid for it)

Nice example for the beginners amongst us (me!)

KL

[cykophysh39]

I have 2 Company Bank accounts.
1 . Trading account
2. Holding account

When I get paid every week, I always transfer my VAT charged and 30% of my weekly rate straight into my holding account and forget about it till they need to be paid. This way I know I have the money to pay always.

[pmeswani]

i'm within ir35 as im gonna be in 1 or 2 locations during my contract me thinks

Just out of interest, have you had your contract reviewed by a IR35 tax specialist? If so, then fair enough. However, just because you are going to be in 1 or 2 locations, doesn't necessarily mean your contract is within IR35.

[Archangel]

i'm within ir35 as im gonna be in 1 or 2 locations during my contract me thinks

If you are within IR35, please ignore my previous calculations and insert the following:

£46,000 (Net income ex VAT)

5% allowed expenses = £2,300

Salary of £39,368 (£43,700 - 11% Employers NI of £4,332)

Income tax on £39,368 (assuming tax code of 603) = £6,665
Employees NI on £39,368 = £1,645.75

Total tax to be paid = £12,642

£12,642 is 27.5% of £46,000

So you need to keep back 27.5% each week for tax and pay your expenses and accountant etc out of your take home.

HTH

[expat]

If you are within IR35, please ignore my previous calculations and insert the following:

£46,000 (Net income ex VAT)

5% allowed expenses = £2,300
...

If you still have the £4000 expenses that you mentioned before, and they are legitimate Schedule E expenses, then they do not form part of the 5% in the deemed payment calculation.