Reply to: Working both perm and contracting - best payment method

[jamesbrown]

Who wants to have to check their accountant's sums?

Are you new to this contracting lark?

[Old Greg]

He got the essential point:

Everything else is insignificant.

I particularly liked this part, though:

Of course, £8404*19% is not £1601, it is £1596.76. And £8404*20% is £1681 not £1685. Etc. Well, of course, he calculated using the right number, £8424, rather than £8404.

So the analysis looks spot on, but Pete found a way to look like he was messing it up in the process while still getting it right. Well done! That's a special skill. Sometimes I wonder if that's the way Donald Trump is running the most powerful country in the world. Get a lot of things right but make the whole thing look like a mess. Maybe Pete is Trump's accountant?

More likely to be suity's. Who wants to have to check their accountant's sums?

[WordIsBond]

He got the essential point:

WordisBond is pretty darn close TBH.

Everything else is insignificant.

I particularly liked this part, though:

Assuming you keep your overall earnings below the higher rate threshold, then taking a salary of £8,404 saves £8,404*19% = £1,601 of Corp Tax, and reduces the amount you have available to take in dividends from the Company by £8,404-£1,601 = £6,823.
The increased income tax on the salary is £8,404*20% = £1,685, and the reduced income tax on the lower dividends is £6,823*7.5% = £512.
so overall the net saving per annum is +£1,601 - £1,685 + £512 = £428.

Of course, £8404*19% is not £1601, it is £1596.76. And £8404*20% is £1681 not £1685. Etc. Well, of course, he calculated using the right number, £8424, rather than £8404.

So the analysis looks spot on, but Pete found a way to look like he was messing it up in the process while still getting it right. Well done! That's a special skill. Sometimes I wonder if that's the way Donald Trump is running the most powerful country in the world. Get a lot of things right but make the whole thing look like a mess. Maybe Pete is Trump's accountant?

[NotAllThere]

I wouldn't trust an accountant who thinks that £8,404-£1,601 = £6,823.

I don't trust an accountant who can't tell me what is in pounds shilling and pence.

[Old Greg]

3..

If he can count that far.

[northernladuk]

3..

[Old Greg]

Oops, mye fisrt psot and I cantt even tipe prorperly!

Doh. Red face all round!!

Indeed, it should have been the usual limited company contactor salary for 18/19 of £8,424...

Lesson learnt - don't manually retype workings from excel! Humble pie fully eaten and sincere apologies given to all.

Too little, too late.

[Hewitt Accountancy Ltd]

Oops, mye fisrt psot and I cantt even tipe prorperly!

Doh. Red face all round!!

Indeed, it should have been the usual limited company contactor salary for 18/19 of £8,424...

Lesson learnt - don't manually retype workings from excel! Humble pie fully eaten and sincere apologies given to all.

[Old Greg]

Love the numbers post. Always a complete **** up

You only get one chance to make a first impression, and accountants absolutely have to get the basics right. It's simply not negotiable.

[northernladuk]

I wouldn't trust an accountant who thinks that £8,404-£1,601 = £6,823.

Love the numbers post. Always a complete **** up

[Old Greg]

Ooooh. Get the new guy. Closing threads off with his first post. Let's get this in General and see what he's really made of!!

I wouldn't trust an accountant who thinks that £8,404-£1,601 = £6,823.

[northernladuk]

Just to close this thread off in terms of the tax impact.

Ooooh. Get the new guy. Closing threads off with his first post. Let's get this in General and see what he's really made of!!

[Hewitt Accountancy Ltd]

Just to close this thread off in terms of the tax impact. WordisBond is pretty darn close TBH.

Working with annualised figures:
Assuming you keep your overall earnings below the higher rate threshold, then taking a salary of £8,404 saves £8,404*19% = £1,601 of Corp Tax, and reduces the amount you have available to take in dividends from the Company by £8,404-£1,601 = £6,823.
The increased income tax on the salary is £8,404*20% = £1,685, and the reduced income tax on the lower dividends is £6,823*7.5% = £512.
so overall the net saving per annum is +£1,601 - £1,685 + £512 = £428.

It gets more complicated when the higher rate income tax threshold is breached. Then taking a salary of £8,404 saves £8,404*19% = £1,601 of Corp Tax, and reduces the amount you have available to take in dividends by £8,404-£1,601 = £6,823.
The increased income tax on the salary is £8,404*20% = £1,685. So far, all as above.
The dividend tax saving is more complex - you save basic rate div tax of £8,404*7.5% = £631, but now lose out on £1,601 taxed at the higher rate of 32.% = £520.
So overall the net saving per annum is +£1,601 - £1,685 + £631 - £520 = £27.
Using your figures and taking 2 salaries, the max div you can take and still save £428 is £11,926; after divs of £13,600 the saving has dropped to £27.

So yes, IMHO it is worth doing!

Hope that helps!
Cheers
Peter
Hewitt Accountancy Ltd

[RyanDS]

Many thanks for all the advice guys. Lots to look into.

Ideally I want to be leaving as much money in the company as possible to build up a warchest, the move here for me is to get out of office politics and improved quality of life as opposed to doing it for the money.

I just wanted to get my head around the worst case so I can plan accordingly.

[Old Greg]

I think he might have figured that out already.


You should pay yourself NMW, and avoid any NI costs. Take whatever else you need as dividends - leave what you don't need in the company.

btw - I'm 50% employed and 50% contractor as well.

What is the advantage of paying NMW through the Ltd (or alternatively what is the obligation to do so)?