Reply to: Comparing inside/outside rates?

[ladymuck]

The effective rate is 26.5%, it's even on the HMRC website as that.

[eek]

I thought the corporation tax rate is on a sliding scale between £50k and £250k? I used an online calculator (might have been on the .GOV site) which suggested my true CT rate would be around 23.5%.

While HMRC talks about tapering the tapering is actual the consequence of everything from £50,001 to £250,000 being taxed at 26.5% to provide that tapering.

So 22% = £50,000 at 19% + £y,000 at 26.5%

And I link to someone who you may trust more than me given that tax is how they make their money

https://www.whitefieldtax.co.uk/help...n-tax-changes/

[BlueSharp]

I thought the corporation tax rate is on a sliding scale between £50k and £250k? I used an online calculator (might have been on the .GOV site) which suggested my true CT rate would be around 23.5%.

I don't understand the 26.5% band either when the max rate is 25%, and that's before the marginal rate is deducted. Playing around with the calculator my effective corp tax rate will be 22%. But I had not realised how close the tax burden was on in comparison between the two.

[edison]

so someone was asking a question to me and I don't have time to fully answer it but I do have 1 additional fact

For every penny above £50,270 to £100,000

Outside IR35

£1 in profit results in £0.735 after Corporation tax (at the 26.5% band)
£1 paid as a dividend will give you £0.6625 (after dividend tax of 33.75%)
So £1 in profit gives you a dividend of 1*0.735*0.6625= 48.7p

Reversing that £1 take home pay will require the company to make £2.05 in profit

Inside IR35

£1 in pay results in £0.58 after tax (40%) and additional employee NI (2%)
£1 agency fee results in a £0.875 of pay (after employer NI and apprenticeship levy deductions of 14.3%.
So £1 agency fee results in take home pay of £0.5075

Reversing that £1 take home pay requires an agency fee of £1.97

So once we get above £50,000a year unless you have expenses or wish to keep money for a future day being inside is a better deal...


Got to say I'm really surprised no-one has actually noticed / mentioned this outright...

I thought the corporation tax rate is on a sliding scale between £50k and £250k? I used an online calculator (might have been on the .GOV site) which suggested my true CT rate would be around 23.5%.

[eek]

I think that's because we are probably all tired of bouncing this one around and never getting an answer so just don't bother

On that point I was thinking more about agencies / accountancy firms then posters here.

I only did the above because it was more interesting than the task I need to do.

[northernladuk]

Got to say I'm really surprised no-one has actually noticed / mentioned this outright...

I think that's because we are probably all tired of bouncing this one around and never getting an answer so just don't bother

[eek]

Second calculation - for the bit to £50,270

Via umbrella

Salary of £50,270 gives you a take home of £38,206 from https://www.thesalarycalculator.co.uk/salary.php

£50,270 of salary will require an extra £5756.46 to cover the Employer NI and £250 to cover the apprenticeship levy.

So £56275+umbrella fee (say £1200) will give you a take home of £38,206

Via limited company

Your salary is £12,570
Dividend £37,700.

Dividend tax 8.75% after the first £1000

so you actual take home is £34488.75+£12,570= £48,058 significantly higher


however you also need to factor in Corporation tax and £37,700 of dividends requires £47,125 of profit.

You also need to add £480 in Employer NI

So £50,270 of salary + dividends requires £12570+£47125+£480= £60,175.


Now given getting to £50,270 in dividends requires £3900 more in agency fees than we have in the umbrella calculation it's worth adding that back into the equation.

And that £3900 agency fee to an umbrella is £1979.25 in take home pay

So keeping agency fees across an inside and outside contract the same at £60,175

working inside IR35 will give you £40,185.
working outside will give you £48,058

but that advantage slowly disappears once you start paying dividends beyond £50,270 or where an inside IR35 contract is paying more than an outside one.

[eek]

so someone was asking a question to me and I don't have time to fully answer it but I do have 1 additional fact

For every penny above £50,270 to £100,000

Outside IR35

£1 in profit results in £0.735 after Corporation tax (at the 26.5% band)
£1 paid as a dividend will give you £0.6625 (after dividend tax of 33.75%)
So £1 in profit gives you a dividend of 1*0.735*0.6625= 48.7p

Reversing that £1 take home pay will require the company to make £2.05 in profit

Inside IR35

£1 in pay results in £0.58 after tax (40%) and additional employee NI (2%)
£1 agency fee results in a £0.875 of pay (after employer NI and apprenticeship levy deductions of 14.3%.
So £1 agency fee results in take home pay of £0.5075

Reversing that £1 take home pay requires an agency fee of £1.97

So once we get above £50,000a year unless you have expenses or wish to keep money for a future day being inside is a better deal...


Got to say I'm really surprised no-one has actually noticed / mentioned this outright...

[password]

This is too hard to answer without more information - are you income shifting with your spouse? What are your expenses (if any). Do you still have your Ltd and associated accountancy fees or is this a new setup? How long is the contract length etc.

Wild stab in the dark suggests that ~ £600 outside is ~ £750 outside.

I just took my 600 and added 13 % to cover inflation as that 600 goes back to Jan 2021 .. let's see how that goes.

[b0redom]

That makes no sense - so I assume you mean £600 outside ~ £750 inside.

I think it really depends on the travel expenses required - because if none are required it's very possible to argue that given the new tax rules the only difference is employer NI at 14.3%

so £750 inside is £660 or so outside and I would personally take the £750 as it allows me more to go into the pension via salary sacrifice.

You would probably need travel costs or another £30/50 a day so ~£700 to make the outside contract worthwhile.

Yes, sorry for the confusion, that's what I meant.

It's not just NI though, it's also semi-trivial expenses - of the inside contracts I've worked, they've generally wanted me to still provide my own phone, laptop etc. Where I could expense that outside, I obviously can't inside. You also get to pay the umbrella margin, and usually an apprenticeship levy whilst inside. It's also pretty rare that you'll have a 100% remote contract. You generally need to go into the office at least a couple of times to pick up stuff and then drop it off at the end of a contract and/or a meeting. You also can't share dividends with your spouse inside IR35.

Like I say it's too hard to give an accurate answer without knowing the ins and outs of the OP's circumstances.

[eek]

Not sure if anyone's said this already, but it's not a straightforward comparison....

As a Business Analyst, I spreadsheeted this to death to try and answer - I can only speak for personal circumstances, but assuming c. £1k/month expenditure (mainly travel), and having a wife who would willingly collect dividends for me and two young children meaning an inside rate loses me Child Benefit & Tax Free Childcare, I came to the conclusion that of two roles I was considering, £600 p/d outside was preferable to the £750 p/d inside role, but the difference was marginal.

Another point to add is if you're expenditure is low and you can afford to leave a decent chunk in ltd., this adds to the argument of being outside imho.

Just an opinion DYOR, your results may vary etc TTFN WDFDIK etc.

The killer there is (any) travel - as you demonstrate it doesn't take much travel to make any inside IR35 rule unappealing which people on here have highlighted for the past 7 years.

Beyond that - the decision probably depends on how much you can afford to put into a pension.

[fiisch]

Not sure if anyone's said this already, but it's not a straightforward comparison....

As a Business Analyst, I spreadsheeted this to death to try and answer - I can only speak for personal circumstances, but assuming c. £1k/month expenditure (mainly travel), and having a wife who would willingly collect dividends for me and two young children meaning an inside rate loses me Child Benefit & Tax Free Childcare, I came to the conclusion that of two roles I was considering, £600 p/d outside was preferable to the £750 p/d inside role, but the difference was marginal.

Another point to add is if you're expenditure is low and you can afford to leave a decent chunk in ltd., this adds to the argument of being outside imho.

Just an opinion DYOR, your results may vary etc TTFN WDFDIK etc.

[malvolio]

Have you read the thread?

OP is currently inside on £750/day
OP has an offer for outside with a previous (different) client whom previously paid them £600/day outside 12 months ago
OP is trying to consider what to charge

Yes I read the thread, and was responding to the question set, which was, in essence, "How do I establish how much to charge a prospective client?", but in rather more general terms. Hard to be specific when you only have half the information.

Also as Eek points out, the OP's numbers appear wrong or at best confusing.

[Lance]

Have you read the thread?

OP is currently inside on £750/day
OP has an offer for outside with a previous (different) client whom previously paid them £600/day outside 12 months ago
OP is trying to consider what to charge

dead easy then.....

"Hi Mr client. Yes I know you used to pay me £600 a day, but times have changed and my new rate is £800 a day."
Then negotiate from there.
OP is worth £750 a day to someone. OPs tax affairs are not the clients' concern.

[eek]

Wild stab in the dark suggests that ~ £600 outside is ~ £750 outside.

That makes no sense - so I assume you mean £600 outside ~ £750 inside.

I think it really depends on the travel expenses required - because if none are required it's very possible to argue that given the new tax rules the only difference is employer NI at 14.3%

so £750 inside is £660 or so outside and I would personally take the £750 as it allows me more to go into the pension via salary sacrifice.

You would probably need travel costs or another £30/50 a day so ~£700 to make the outside contract worthwhile.