Withdrawals

[tractor]

....

Hi,

I'm sure this must have been addressed elsewhere, though can't find through a search. Please feel free to direct me elsewhere is the info is already posted.

I've been offered my first contract role at £300 p/d and it seems as though the calculators indicate I could be getting £5000+, after tax, which seems unrealistic. If do around 10,000 miles a year and this pretty much my only major allowable expense - what are they options for drawing down money from the Ltd company I will create and how less 'tax-efficient' does it become the more I draw?

I am in the process of engaging an accounant, but they seem unwilling/unable to givea simple answer to this question.

Many thanks,

Rob

Here is a clue. The few very varied replies you have had to this thread so far indicates why your accountant is unwilling/unable to give a simple answer. Because there is no such thing. All of your and your spouse (if any) circumstances come into play and the permutations are many.

My biggest concern is that all the first timers come here looking to maximise their 'take home' when really, they should be maximising their commercial/financial understanding as a priority.

This in turn will give you most of the knowledge required for you to make an informed decision.

[psychocandy]

I think you have cognitive issues PS, arguing purely on semantics isn't really fair is it?

If NLUK had said this it'd be funny though???

[The Spartan]

I agree, you need to plan ahead and ensure you have enough to cover you in the event that you don't land a second gig immediately. Of course the temptation is always there to withdraw as much as possible but it's not always the best option and some may deem it very foolish. You need to find the right balance remember contracting is a risky business this is often offset by the reward but that's only when it's there.

[stek]

No its not. Higher rate has to be paid if your personal income exceeds the bracket because of these dividends

Not paying out dividends to ensure you don't exceed the bracket is optional.

I think you have cognitive issues PS, arguing purely on semantics isn't really fair is it?

[psychocandy]

Should you take the maximum amount from your company you can expect £5,085/month (i.e. £883 in salary + £375 in mileage + £3,827 in dividends)

These are the figures you are probably being quoted using accountants' calculators (actually you are probably being quoted higher figures as I have used 14.5% for flat rate scheme VAT and have not included subsistence, use of home, etc). These figures have been massaged by the accountants to make your eyes light up and to make you salivate profusely. However these figures do not take into account the higher rate tax due on dividends.

After taking into account higher rate tax on dividend you can expect £5,085 - £361 income tax = £4,724/month.

Paying the higher rate tax on dividends is optional. Should you stick to £2,383/month in dividends you will not need to pay higher rate tax on dividends.

No its not. Higher rate has to be paid if your personal income exceeds the bracket because of these dividends

Not paying out dividends to ensure you don't exceed the bracket is optional.

[psychocandy]

Some of you talk some crap.....

Why does warchest have to be left in the company? It doesnt. It makes sense to withdraw as much as you can up to the 40% limit and keep this as personal savings.
In fact, I'd say leaving it in there when you've got some of the 40% bracket to play with is pretty dull.

And how can you determine how much the OP can withdraw? It all depends on whether hes married/willing to split dividends/wife works etc.

For instance, with a 10K salary and a partner having their own employment (earning £10 say), then theres another £30K or so per person in dividends to be had before you exceed the 40%.

[JB3000]

Hi,

I'm sure this must have been addressed elsewhere, though can't find through a search. Please feel free to direct me elsewhere is the info is already posted.

I've been offered my first contract role at £300 p/d and it seems as though the calculators indicate I could be getting £5000+, after tax, which seems unrealistic. If do around 10,000 miles a year and this pretty much my only major allowable expense - what are they options for drawing down money from the Ltd company I will create and how less 'tax-efficient' does it become the more I draw?

I am in the process of engaging an accounant, but they seem unwilling/unable to givea simple answer to this question.

Many thanks,

Rob

Should you take the maximum amount from your company you can expect £5,085/month (i.e. £883 in salary + £375 in mileage + £3,827 in dividends)

These are the figures you are probably being quoted using accountants' calculators (actually you are probably being quoted higher figures as I have used 14.5% for flat rate scheme VAT and have not included subsistence, use of home, etc). These figures have been massaged by the accountants to make your eyes light up and to make you salivate profusely. However these figures do not take into account the higher rate tax due on dividends.

After taking into account higher rate tax on dividend you can expect £5,085 - £361 income tax = £4,724/month.

Paying the higher rate tax on dividends is optional. Should you stick to £2,383/month in dividends you will not need to pay higher rate tax on dividends.

[SueEllen]

If you read all the first timers guides and look at threads on here (you may need to use google) you will find most of the answers to your questions.

You will have more expenses than just your mileage, but what they are depends on the contract.

[northernladuk]

Draw as much as you like from your limited but remember to leave something for CT and something for your war chest.

Anything drawn down over 3200 a month (roughly) means you will be paying a lot more in tax and might not leave you any war chest (not nice) and/or no money to pay your CT (squeaky bum time).

I'd say 90% of us take the 3200 most-tax-efficient amount and leave the rest to mount up for rainy days (which you will have) and CT.

This for me means I'm personally perennially skint but I have a fairly huge war chest (years worth) so after this length of time I'm thinking of drawing more and paying more tax, life too short but that balance is down to you and how you value your responsibilities.

And don't forget to factor in provision for your Plan B, contracting is dying....

+1 to all of this but don't forget VAT when considering what you can withdraw.

Re-iterate the warchest comment. This has to be you sole focus in your first gig IMO. The second one appears to be the hardest one to land so you need that backup more than ever in your career.

I am not surprised they are unwilling, you could just be trying to get free information out of them and there are a whole raft of things for them to consider before committing to figures you will then hold them to.

Make sure you are going for a good solid contractor accountants first. Lots in the recommendation thread.

And get your contract checked by QDOS et al.

[stek]

Draw as much as you like from your limited but remember to leave something for CT and something for your war chest.

Anything drawn down over 3200 a month (roughly) means you will be paying a lot more in tax and might not leave you any war chest (not nice) and/or no money to pay your CT (squeaky bum time).

I'd say 90% of us take the 3200 most-tax-efficient amount and leave the rest to mount up for rainy days (which you will have) and CT.

This for me means I'm personally perennially skint but I have a fairly huge war chest (years worth) so after this length of time I'm thinking of drawing more and paying more tax, life too short but that balance is down to you and how you value your responsibilities.

And don't forget to factor in provision for your Plan B, contracting is dying....

[robbane28]

Hi,

I'm sure this must have been addressed elsewhere, though can't find through a search. Please feel free to direct me elsewhere is the info is already posted.

I've been offered my first contract role at £300 p/d and it seems as though the calculators indicate I could be getting £5000+, after tax, which seems unrealistic. If do around 10,000 miles a year and this pretty much my only major allowable expense - what are they options for drawing down money from the Ltd company I will create and how less 'tax-efficient' does it become the more I draw?

I am in the process of engaging an accounant, but they seem unwilling/unable to givea simple answer to this question.

Many thanks,

Rob