Newbie with idea for financial approach

[OhComplexRules]

Hi

About to becoe a contractor for the first time. Read all the stuff about tax and IR35. But then I thought, why can't you do the following:

- Set up Ltd company
- Company receives income from contract
- Only pay youself 39k so 20% tax plus all the NI. Live off that
- Put some more of the funds in a pension
- But the new bit I haven't read anywhere else is this bit
- With the rest of the money keep it in your company
- Have the company invest it in something, eg FTSE tracker fund so it grows (usually!)
- Do this for say 5 years, building up that pot of investment funds owned by the company
- After 5 years, stop contracting and take a few years off but leave the company going
- Whilst taking a few years off, continue to pay yourself £39k so lower rate tax
- Do that for a few years until the company runs out of cash
- Start again

That way you keep your tax bill at lower rate Income Tax + EeNI + ErNI + the Company Tax

I am not an accountant so there could be serious flaws in this but what do you think?

Thanks


PS I just know I am going to get flamed...

[BrilloPad]

Hi

About to becoe a contractor for the first time. Read all the stuff about tax and IR35. But then I thought, why can't you do the following:

- Set up Ltd company
- Company receives income from contract
- Only pay youself 39k so 20% tax plus all the NI. Live off that
- Put some more of the funds in a pension
- But the new bit I haven't read anywhere else is this bit
- With the rest of the money keep it in your company
- Have the company invest it in something, eg FTSE tracker fund so it grows (usually!)
- Do this for say 5 years, building up that pot of investment funds owned by the company
- After 5 years, stop contracting and take a few years off but leave the company going
- Whilst taking a few years off, continue to pay yourself £39k so lower rate tax
- Do that for a few years until the company runs out of cash
- Start again

That way you keep your tax bill at lower rate Income Tax + EeNI + ErNI + the Company Tax

I am not an accountant so there could be serious flaws in this but what do you think?

Thanks


PS I just know I am going to get flamed...

Seems fine to me. If you can live off 39k and are happy to take a few years off (which could be bad for your future earning prospects).

[cojak]

Ah har me hearty.
Have a plan B.

Be a pirate - like me. Arrr!

[thunderlizard]

No, there is nothing wrong with that.

From the personal tax point of view, you pay less tax because you have less income. No taxman would have a problem with that.

From the company point of view, it does look like building your company up and then willfully running it into the ground. But it's a free country, and as long as you do it without owing anybody any money in the end, nobody will touch you.

[thunderlizard]

oh hang on.

If your company makes a profit in 2008, it has to pay corporation tax on it. If it then pays that money out in salary in 2009 the employee has to pay his taxes on it.

But if the same money were paid out in salary in 2008, the employee would still have to pay his taxes but there would be no corporation tax payable on it because it wouldn't have been profit.

maybe that makes a difference.

I am, clearly, not an accountant.

[voodooflux]

Ah har me hearty.
Have a plan B.

Be a pirate - like me. Arrr!

Drugs are bad, m'kay

[cojak]

I refuse to be serious in Light Relief...

[voodooflux]

Yo-ho-ho!

You seen this handy Pirate to English Translator?

[cojak]

Arrr! Ta, me hearty!

And since I've discovered My Pirate Name I will only answer to Black Annie Bonner!

(At least till i get back from my holiday the week after next...)

[Bear]

Arrr! Ta, me hearty!

And since I've discovered My Pirate Name I will only answer to Black Annie Bonner!

(At least till i get back from my holiday the week after next...)

Awesome!!!!

the best question by far:

Buckle your swash often?

I am quite the buckler-of-swashes.
I have no need of swashes, buckled or un-.
That sounds dirty.