Reply to: Half year employee/remaining half contracting

[northernladuk]

big assumption

plus you need to factor in sick pay, holiday pay, insurances, pension etc

Very good point especially when the OP is in the most difficult phase of contracting I.e. the first two gigs.

[fidot]

Assuming you work 120 days until end of March

big assumption

plus you need to factor in sick pay, holiday pay, insurances, pension etc

[comcontractor]

Thanks. This is what I was looking for :-)

£400/day should do it

Assuming you work 120 days until end of March that will give you £48k

Minus £2k of expenses gives you £46k of profit

Minus £9k for corp tax gives you £37k for divi's

When you take the £37k of divi's you lose about £7k in income tax so left with £30k

£30k over 6 months is £5k/month

[JB3000]

Hi,

I have an employee of a multination company. I have been made redundant from them now. My salary from this employment has been 33,000 GBP for 2015/2016.

I am about to start contracting via a limited company. I would be its sole director. I would be working from home. I am negotiating my new contract. The terms of negotiation should be such that I should be getting 5000 GBP per month after taxes.

Assume that I can claim expenses of 300 GBP per month. How much should my limited company be paid each month to achieve this if the contactor duration is 3 months and if the contract duration is 6 months?

Thanks.

£400/day should do it

Assuming you work 120 days until end of March that will give you £48k

Minus £2k of expenses gives you £46k of profit

Minus £9k for corp tax gives you £37k for divi's

When you take the £37k of divi's you lose about £7k in income tax so left with £30k

£30k over 6 months is £5k/month

[stek]

Sounds like OP was an employee, employer wants to move him into contracting, and have promised to make sure he gets the same take home pay. Something like that.

OP, if that's the story, you need more than just the same take home pay. Benefits, pension contributions, etc.

If you'll be contracting with your former employer, unless a lot of things change (which they probably won't change), you'll probably be under IR35. So your tax has to be figured based on that.

IR35 status is vital to this question. So are a lot of other things.

No way anyone can really give you a meaningful answer without a lot more detail than you've given.

Yeah, sounds spot on.

£66k pa is around £4k a mo or so net monthly?

If IR35 caught I'd suggest OP looks at a yearly contact of three times, so around £180k for ease or workings? 90k 6 months, 45k for 3.

15k a month, sounds about right? Expenses of £300 a month not going to be relevant if caught or not-caught really given the amount.

I've probably got this wrong too as I am being particularly thick today (so what's new...)....

[WordIsBond]

Sounds like OP was an employee, employer wants to move him into contracting, and have promised to make sure he gets the same take home pay. Something like that.

OP, if that's the story, you need more than just the same take home pay. Benefits, pension contributions, etc.

If you'll be contracting with your former employer, unless a lot of things change (which they probably won't change), you'll probably be under IR35. So your tax has to be figured based on that.

IR35 status is vital to this question. So are a lot of other things.

No way anyone can really give you a meaningful answer without a lot more detail than you've given.

[ceebeepps]

It would be great if you could let me know how would dividends be taxed (with thresholds) in my situation. What would be the most tax efficient way?

Thanks.

your entire income in the tax year contributes to your personal limit. This was me in my first year. Speak to your accountant for best tax efficient advise, or if you dont have one, you can pay me to share the information i paid my accountant for

[ceebeepps]

Why has no one asked him what his accountant says?

i was just about to

[stek]

I feel this may be another teeth-pulling thread...

[northernladuk]

33k for 6 months (april to now) - presumably around 66k annual

Very good point well made. Thanks.

[comcontractor]

Hi,

Thanks for the replies. My accountant is away. This is the reason.

Why I am asking this is a long story. My question refer to the current tax year. I would not be postponing to the next year. If you could answer the following:

1. Given 33k salary, how would dividends be taxed? Can I still draw 32.1k of dividends without paying any tax on it? Or I can only draw 9k, without paying the taxes.

It would be great if you could let me know how would dividends be taxed (with thresholds) in my situation. What would be the most tax efficient way?

Thanks.

[stek]

Why has no one asked him what his accountant says?

[pr1]

I also think you are putting the cart before the horse here. You are assuming working from home is something you can negotiate, which in a vast number of cases it isn't. It can be a flexibility once you are in but it's rarely a given.

Also you get paid what they want to pay you and then you negotiate. All gigs come with a rate card from the client which the agent then buggers about with and pops something out. You then negotiate around that figure. You won't find many gigs that will just ask you what you want. Even if they did trying to match your permie gig is a very poor way about it. You work in a completely different field with many different risks. You need to understand what market rate and supply and demand is, not try and match permie rate.

Look around the job sites and ITjobswatch to see what the market rates are. Don't get giddy at the high rates though as 33k doesn't indicate a very senior role so may not match the gigs you think you can do.

And another point you are assuming expenses but in contracting you may have to travel a lot further to get end to end gigs. One might have next to no expenses, the next might need a grand or so per month etc.

Go out to market and look what there is rather than trying to match your permie package.

33k for 6 months (april to now) - presumably around 66k annual

[northernladuk]

I also think you are putting the cart before the horse here. You are assuming working from home is something you can negotiate, which in a vast number of cases it isn't. It can be a flexibility once you are in but it's rarely a given.

Also you get paid what they want to pay you and then you negotiate. All gigs come with a rate card from the client which the agent then buggers about with and pops something out. You then negotiate around that figure. You won't find many gigs that will just ask you what you want. Even if they did trying to match your permie gig is a very poor way about it. You work in a completely different field with many different risks. You need to understand what market rate and supply and demand is, not try and match permie rate.

Look around the job sites and ITjobswatch to see what the market rates are. Don't get giddy at the high rates though as 33k doesn't indicate a very senior role so may not match the gigs you think you can do.

And another point you are assuming expenses but in contracting you may have to travel a lot further to get end to end gigs. One might have next to no expenses, the next might need a grand or so per month etc.

Go out to market and look what there is rather than trying to match your permie package.

[dynamicsaxcontractor]

This can hardly be difficult to work out for yourself.

I did a similar move when I moved to contracting, was in the higher tax bracket so just left all money in the company until new tax year. Ok I had saved up enough war chest before doing the plunge, but I assume you already have some savings? Only thing to consider is the new dividend tax regime, might be worth taking some before April?