Reply to: Salary/Dividend Level

[northernladuk]

Hmm do. Dunno what happened there. Must have pasted you comment in for reference and forgotten to edit it. Fair spot. Well done.

Edit. Oh I see now. It was to reference the original scenario cause you'd brought the other towns in. Must have gotten distracted.

[missinggreenfields]

Not true - it depends on the journey. If you live in the centre of the town and client one is on the eastern outskirts, then if client two is on the western outskirts then the journey is different even though they are in the same town. Therefore, both locations are temporary, so the duration in the same town can easily exceed 24 months if the location is different.

Christ no... As pointed out it is about cost and duration. Both mentioned many times in the guidance. Absolutely no where does it mention direction. I have no idea what those journeys are like but just to remind you about the point we are discussing. Bearing in mind this is relief on costs, how does direction have any bearing on that?

If you live in the centre of the town and client one is on the eastern outskirts, then if client two is on the western outskirts then the journey is different even though they are in the same town.

So, you now agree with what I wrote some posts ago? Jesus wept.

To expand on your logic slightly - that the journey is only about duration and cost - let's look at how daft that idea is.

Let's say I live in Birmingham. That's about 120 miles from London if I drive it. It takes 2 1/2 hours to get there. If I use the same amount of fuel to travel 120 miles in 2/12 hours to Colwyn Bay, is that the same journey - I'm taking the same amount of time, I'm travelling the same distance, and it's costing me the same amount of fuel.

Of course it's not the same journey, but under the NLUK "it's the time and the cost and nothing about the direction of travel" interpretation of the rule, you would class the two journeys as the same. In which case, you're probably missing out on claiming a lot of valid travel and subsistence expenses.

[northernladuk]

There is no need to be rude.

Coming from you?

I did put a cheeky tongue out smilie at the end. Back in your box you.

Lots of us disagree with you about your interpretation of the 2 year rule.

Enter the fray with your thoughts then. I'm happy to listen and discuss.

[SueEllen]

Next you will be telling me you can reset the rule because the client next door to your old one starts and hour earlier so you journey is significantly darker.......

There is no need to be rude.

Lots of us disagree with you about your interpretation of the 2 year rule.

Funnily enough even though I disagree with your interpretation I've pointed out to other contractors even with my looser interpretation that they are caught by it. They look p*ssed when I point out their journeys have been the virtually the same for the past 3+ years e.g. three stops down the same tube line, so they can't claim.

[stek]

Next you will be telling me you can reset the rule because your new client next door to your old one starts and hour earlier so you journey is significantly darker.......

What if your new train journey is similar but the next gig you sit with your back to the engine instead?

My Missus can't stand having her back to the engine, and travelling via Bradford Interchange totally throws her, she just doesn't get it. Women, no spatial awareness....

Two First Class Honours Degrees and and can't work out why she can't point the same way all the time when a train has to reverse out of a Y terminus....

[northernladuk]

Next you will be telling me you can reset the rule because your new client next door to your old one starts and hour earlier so you journey is significantly darker.......

[northernladuk]

A complete about turn doesn't meet the NLUK definition of being a significant change in journey? OK. On that theory, heading 40 miles north east to Edinburgh from Abington is the same journey as heading 40 miles north west to Glasgow

Christ no... As pointed out it is about cost and duration. Both mentioned many times in the guidance. Absolutely no where does it mention direction. I have no idea what those journeys are like but just to remind you about the point we are discussing. Bearing in mind this is relief on costs, how does direction have any bearing on that?

If you live in the centre of the town and client one is on the eastern outskirts, then if client two is on the western outskirts then the journey is different even though they are in the same town.

I agree that the bullet points help. Heading 180 degrees in the other direction for the duration of the journey meets the "significant effect on the journey an employee has to make to get to work" bullet point, and in some circumstances could also have a financial cost depending on the travel mechanism the employee uses.

I'd suggest that with that kind of change, the bullet points you are quoting support my point of view much more than they support your argument

#

We'll have to disagree then. To me a journey is made up of tangibles like time, type of transport and cost. I also believe that, depending on the size of the location (but you did say town), that it's in the same geographical location so arguing the details of west or east is irrelevant.

Like most 24 month rule arguments, it's highly dependant on the exact details of the situation, which we don't have so no point going further really.

[missinggreenfields]

Significantly different is in duration or/and cost. 10 miles east switch to 10 miles west is neither. The journey is the same.

A complete about turn doesn't meet the NLUK definition of being a significant change in journey? OK. On that theory, heading 24 miles east to Edinburgh from Whitburn is the same journey as heading 24 miles west to Glasgow

The bullet points make it much clearer. A 10 mile journery west changing to a 10 mile journey each doesn't meet either of those criteria. The only significant effect in your example is what he sees out of the window.

I agree that the bullet points help. Heading 180 degrees in the other direction for the duration of the journey meets the "significant effect on the journey an employee has to make to get to work" bullet point, and in some circumstances could also have a financial cost depending on the travel mechanism the employee uses.

I'd suggest that with that kind of change, the bullet points you are quoting support my point of view much more than they support your argument

[northernladuk]

So it's not true, but it's only true in more cases than not. Glad you agree



Again, glad we agree - it's not true in certain cases

Although your Manchester example is wrong - if the journey is significantly different, then you claim it. Show me ANY legislation or HMRC guidance or case law which says differently. If the journey is significantly different (and travelling in completely different directions is, IMHO, different) then they are temporary locations. I don't for one minute think that changing direction completely wouldn't reset the clock - show me something where a completely different journey doesn't reset the clock.

Significantly different is in duration or/and cost. 10 miles east switch to 10 miles west is neither. The journey is the same.

It's still not clear and still leaves room for argument but from the

Changes to a workplace
4.6
An employee’s workplace may change without significantly affecting their journey to
work. Where an employee moves offices from Cardiff to Edinburgh there is clearly
a change of workplace affecting the employee’s journey to work. But the position
is different if an employee moves to a new office in the next door building. In these
circumstances there is no significant effect on the employee’s journey to work and under
the tax rules there is no change of workplace.
This rule prevents employers from making small changes to the place where an employee
works to take advantage of the temporary workplace rules. Where there is no significant
change to an employee’s journey the rule operates to treat the 2 workplaces as being
the same.

Now this on it's own is a bit wooly but from it I take the like where there is 'no significant effect on the employees journey'. He sits in the car for 40 mins and spends a fiver on petrol. The direction is irrelevant... but reading on...

4.7
Sometimes it may be difficult to decide whether a change of workplace affects an
employee’s entitlement to tax relief.
The basic principle is that a change in the location or boundaries of a workplace will give
rise to a new workplace where the change has a significant effect on:
• the journey an employee has to make to get to work
• the cost of that journey

The bullet points make it much clearer. A 10 mile journery west changing to a 10 mile journey each doesn't meet either of those criteria. The only significant effect in your example is what he sees out of the window.

[missinggreenfields]

I think you are wrong to say not true. I more cases than not it is true. The contract does not allow for notice payments, in the few cases that get it paid it's through strong arming the agent. The contractual terms will often get them off. Your comments are right but to say 'It's not true' is a bit too black and white. It's a good position to start from and if you get paid it's a bonus, not an expectation.

So it's not true, but it's only true in more cases than not. Glad you agree

Again I think the 'Not True' is the wrong response. He did say generally so it will kick in in most cases in most towns. So it's only not true in certain cases, not black and white again. Taking a leaf out of your book I could say the East to West is OK is not true. The true answer is it is highly dependant on circumstances and is a very grey area indeed. I don't for one minute think changing from East Manchester to West Manchester would reset the clock. It's still in a geographic location. A permie would easily consider this a normal move so it would be difficult to argue the cost and distance are significantly different. IMO 10-20 miles is not significant when I work up and down the country. That would be a nice easy change. It's a hot topic, no one knows the answer but to say 'Not True' is incorrect.

Again, glad we agree - it's not true in certain cases

Although your Manchester example is wrong - if the journey is significantly different, then you claim it. Show me ANY legislation or HMRC guidance or case law which says differently. If the journey is significantly different (and travelling in completely different directions is, IMHO, different) then they are temporary locations. I don't for one minute think that changing direction completely wouldn't reset the clock - show me something where a completely different journey doesn't reset the clock.

[MrMarkyMark]

Again I think the 'Not True' is the wrong response. He did say generally so it will kick in in most cases in most towns. So it's only not true in certain cases, not black and white again. Taking a leaf out of your book I could say the East to West is OK is not true. The true answer is it is highly dependant on circumstances and is a very grey area indeed. I don't for one minute think changing from East Manchester to West Manchester would reset the clock. It's still in a geographic location. A permie would easily consider this a normal move so it would be difficult to argue the cost and distance are significantly different. IMO 10-20 miles is not significant when I work up and down the country. That would be a nice easy change. It's a hot topic, no one knows the answer but to say 'Not True' is incorrect.

I stopped claiming expenses two years after starting work in London.
I used to work in Hammersmith, then switched to other locations, then to Canary Wharf.

Didn't really seem worth it to me, travel costs are the least of my worries. In addition, I agree with NLUK, I didn't see the location as being different enough.

Obviously, everyone's appetite for risk is different.

[northernladuk]

Again, not true. You cannot assume with any degree of accuracy that the contract is the same and that there is no chance that your notice period will be paid - it might and it might not. The number of people I know who have not received paid notice exceeds the number of people I know who have been paid their notice period, but that number is not zero. It depends on the contract and the wording therein.

I think you are wrong to say not true. I more cases than not it is true. The contract does not allow for notice payments, in the few cases that get it paid it's through strong arming the agent. The contractual terms will often get them off. Your comments are right but to say 'It's not true' is a bit too black and white. It's a good position to start from and if you get paid it's a bonus, not an expectation.

Not true - it depends on the journey. If you live in the centre of the town and client one is on the eastern outskirts, then if client two is on the western outskirts then the journey is different even though they are in the same town. Therefore, both locations are temporary, so the duration in the same town can easily exceed 24 months if the location is different.

Again I think the 'Not True' is the wrong response. He did say generally so it will kick in in most cases in most towns. So it's only not true in certain cases, not black and white again. Taking a leaf out of your book I could say the East to West is OK is not true. The true answer is it is highly dependant on circumstances and is a very grey area indeed. I don't for one minute think changing from East Manchester to West Manchester would reset the clock. It's still in a geographic location. A permie would easily consider this a normal move so it would be difficult to argue the cost and distance are significantly different. IMO 10-20 miles is not significant when I work up and down the country. That would be a nice easy change. It's a hot topic, no one knows the answer but to say 'Not True' is incorrect.

[TheCyclingProgrammer]

Good post, a few points...

The main bits of advice:

1) Every invoice payment that comes into your company account, put at least 33% into a business savings account. This is your VAT and Corporation tax money. Do not be tempted to spend it on things. This money is NOT YOURS.

Even better...use online bookkeeping software like FreeAgent, Xero, Kashflow etc. (FreeAgent my preference) so you always have a clear picture of your tax liabilities...FreeAgent for example will do your payroll, VAT returns and give you a 99% accurate picture of your corporation tax liability. Don't rely on guesswork.

4) If you are married, make your wife a 50% shareholder. You can then take more money out more efficiently between you.

This really depends on what your spouse/partner earns. If they aren't in full-time employment, some share could be worthwhile but not necessarily 50%. If they are a higher rate tax payer then its not worth doing (not even for the £5k dividends she could get tax free IMO, as you'd probably need to look at something like alphabet shares to make this work).

[missinggreenfields]

I agree with the majority, but...

4) If you are married, make your wife a 50% shareholder. You can then take more money out more efficiently between you.

That isn't necessarily true. If the spouse is already a higher rate taxpayer, then anything over the initial £5k divided will be taxed higher. If the spouse already has dividend income from elsewhere, then this is also something that needs consideration. Setting the level at 50%, which may suit your personal situation, will not suit everyone - it needs careful individual consideration rather than a blanket "make your wife a 50% shareholder and it'll be more efficient" line.

8) Assume your client can bin you off at a day's notice. You will not be entitled to compensation, or employment tribunals, or to be paid your contractual notice period. The lack of Mutuality of Obligation in an IR35-proof contract means they don't have to give you work during your notice period. No work = no timesheet. No timesheet = no pay.

Again, not true. You cannot assume with any degree of accuracy that the contract is the same and that there is no chance that your notice period will be paid - it might and it might not. The number of people I know who have not received paid notice exceeds the number of people I know who have been paid their notice period, but that number is not zero. It depends on the contract and the wording therein.

10) Understand the 2 year rule for travel expenses. If you are outside IR35 and not using an Umbrella, you can claim your train/bus ticket/mileage and potentially your lunch until you know you will be at a single location for more than 2 years - i.e. your get a contract which takes you beyond two years in that location. This isn't single location as in single workplace for a single client, but generally same town/same city irrespective of how many different offices or clients inside that town.

Not true - it depends on the journey. If you live in the centre of the town and client one is on the eastern outskirts, then if client two is on the western outskirts then the journey is different even though they are in the same town. Therefore, both locations are temporary, so the duration in the same town can easily exceed 24 months if the location is different.

[chopper]

The main bits of advice:

1) Every invoice payment that comes into your company account, put at least 33% into a business savings account. This is your VAT and Corporation tax money. Do not be tempted to spend it on things. This money is NOT YOURS.

2) Any money you pay yourself, make sure you put enough into a personal savings account to cover your tax liability. The dividends you pay yourself, you will need to pay the 7.5% (or more) tax on that yourself.

3) Do not treat your company's money as yours. It is not yours, it is your company's money. It only becomes yours once you withdraw it.

4) If you are married, make your wife a 50% shareholder. You can then take more money out more efficiently between you.

5) Don't spend all the money. You'll need it when you're looking for your next job.

6) Make sure your contract and working practices are outside of IR35 or it is all irrelevant - you'll pay the full whack of employee's NI, employer's NI and income tax on everything you earn - like a permie.

7) You are running a business. Understand what that means.

8) Assume your client can bin you off at a day's notice. You will not be entitled to compensation, or employment tribunals, or to be paid your contractual notice period. The lack of Mutuality of Obligation in an IR35-proof contract means they don't have to give you work during your notice period. No work = no timesheet. No timesheet = no pay.

9) You can put up to £40,000 per year into a pension fund. Don't do this (or at least only put a little bit in) until you have built up a mountain of cash that is yours or your company's, rather than the taxman's. You can make employer's contributions into a pension fund, this helps to reduce your corp tax bill.

10) Understand the 2 year rule for travel expenses. If you are outside IR35 and not using an Umbrella, you can claim your train/bus ticket/mileage and potentially your lunch until you know you will be at a single location for more than 2 years - i.e. your get a contract which takes you beyond two years in that location. This isn't single location as in single workplace for a single client, but generally same town/same city irrespective of how many different offices or clients inside that town.

11) If you are unsure or don't think you can trust yourself to save money, then use an Umbrella until you are sure.

12) Become a regular on here. Don't keep asking the same question that other people ask every day. Read the CUK Navigation bar. Ask your accountant things which you pay an accountant for - the advice on here is worth the money you pay for it. Know that NorthernLadUK will put you down. Know that he is simply an automatic responder from here NorthernladUK Comment generator

13) I get it. Your accountant or someone else will tell you something and you wont like the answer. And you'll ask it here. In some circumstances (e.g. how much should I pay myself?) your accountant will tell you something different to what someone else's accountant will tell them. Different people have different circumstances, with different daily rates, different family arrangements and live in different places.

14) Contracting isn't a way of getting out of paying tax on the money you earn. The tax landscape has been favourable towards contractors running legitimate businesses, but it will probably become less so as time passes. If someone calls you with a scheme that sounds too good to be true (e.g. keep 90% of your money), it is too good to be true, and when the tax man cometh it will be you needing the lubricant.