Switching from inside IR35 to outside IR35 - is it worth it in my case?

[willendure]

Yes, length of contract is a factor also. I was just assuming it was full time for a full tax year with my calculations.

Just trying to give some numbers, but obviously based on assumptions that may not be correct for the OP. Best thing is to build your own spreadsheet as you suggest, and set it all up to match your real circumstances.

I think I did get the corp tax wrong too - since it will be > 19% also.

If take home pay on an inside gig is really £10K after all deductions, that is very good. I still think likely to be better than the outside gig at £700/day - but yeah, it depends...

[hobnob]

I have a spreadsheet that can work this all out.

I don't think your figures are correct, and I agree with Protagoras that you need to look at the duration of the contract. I.e. rather than calculating figures for a month and multiplying up to get to a year, you should work out the company's total income over the accounting year and your personal income over the financial year and then divide it down to get the monthly figures.

NB In the OP's case, the calculations would be different for the current FY (probably on zero salary) and the next FY (taking a tax-efficient salary).

700 outside @ 20 days/month yields a take home of £11482, with £2517 estimated corporation tax if corp expenses are zero.

I'd expect the OP's company expenses to be higher than zero (e.g. accountancy fees). I think you're also assuming £750/month for salary (based on your comment below).

£700 x 20 = £14,000 monthly turnover for the company
£14,000 - £750 salary = £13,250 monthly profit
19% tax on £13,250 = £2,517.50 in corporation tax

However, the actual corporation tax rate varies between 19% and 25%. In this case, I think the OP would qualify for marginal relief (because the annual profits won't exceed £250,000):
Corporation Tax rates and allowances - GOV.UK
The precise calculation for that relies on knowing the total profits over the company's accounting year, but you can't just scale up from 1 month.

There's also some discussion amongst accountants about the most tax-efficient salary to take, so £750/month (£9,000/year) might not be the best choice. E.g. Maslins recommend £1,047/month (£12,564/year).
Maslins' 25/26 salary and dividend recommendations | Maslins

But if you take out the entire £11482 - £750(directors salary) = £10732, your dividend tax will be £2728 !! In a year you would earn £137784 and pay £32747 in tax.

"Your personal allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above."
Income Tax rates and Personal Allowances : Current rates and allowances - GOV.UK

Likewise, being above that £125k threshold means that the OP will be paying tax at 3 different rates (basic, higher, and additional).

I agree with using a spreadsheet, but I think the OP needs to play around with different scenarios.

[Protagoras]

To calculate this, it's also necessary to take into account the expected duration of each contract.

Then there's the risk factor that for a Ch10 engagement there's really no such thing as 'outside' certainty until after payment of the first invoice. Hence there's a risk that for proper comparison needs to be considered.

[willendure]

My current take home is 10K per month. According to my latest payslip from Paystream, so far this year (since April 6) I have had 79K gross for tax and NI (net of employers NI, apprenticeship levy and the umbrella fees), 29K 'tax paid' (PAYE) and 2.4K employees NI.

I am trying to estimate if it makes sense to switch to an outside IR35 contract paying 700 per day. Last time I was working outside IR35 (in early 2022) the corporation tax rate was 19%, not 25% like nowadays. Plus, it seems that it does not make sense to pay myself a salary given my take home from the umbrella so far, and have to pay myself only dividends. If I want to extract all the money left in the company after paying bills and taxes, I seem to end up with less take home than under my current contract.

The main reason I am exploring this outside IR35 option is that it is completely remote work, which I quite prefer to going to the office 3 times a week, even though it is very close.

I have a spreadsheet that can work this all out.

700 outside @ 20 days/month yields a take home of £11482, with £2517 estimated corporation tax if corp expenses are zero. Depending on how much of that £11482 you actually take out as dividends, you also need to subtract dividend tax from that - I tend to leave a lot of earnings in the company to reduce dividend tax and have funds available for non-working times, which is why I don't calculate that part in a way that makes any sense to you!

But if you take out the entire £11482 - £750(directors salary) = £10732, your dividend tax will be £2728 !! In a year you would earn £137784 and pay £32747 in tax.

So it would seem to depend on how much dividends you take out, corp expenses, and also things like pension contributions to offset tax, to get a correct estimation for your particular circumstances.

[londonbeat]

The outside IR35 contract is with a new client.

[WTFH]

My current take home is 10K per month. According to my latest payslip from Paystream, so far this year (since April 6) I have had 79K gross for tax and NI (net of employers NI, apprenticeship levy and the umbrella fees), 29K 'tax paid' (PAYE) and 2.4K employees NI.

I am trying to estimate if it makes sense to switch to an outside IR35 contract paying 700 per day. Last time I was working outside IR35 (in early 2022) the corporation tax rate was 19%, not 25% like nowadays. Plus, it seems that it does not make sense to pay myself a salary given my take home from the umbrella so far, and have to pay myself only dividends. If I want to extract all the money left in the company after paying bills and taxes, I seem to end up with less take home than under my current contract.

The main reason I am exploring this outside IR35 option is that it is completely remote work, which I quite prefer to going to the office 3 times a week, even though it is very close.

Have you already been offered a new contract with a new client and it has been confirmed as outside IR35, or are you hoping to stay with your current client and change the contract?

[londonbeat]

My current take home is 10K per month. According to my latest payslip from Paystream, so far this year (since April 6) I have had 79K gross for tax and NI (net of employers NI, apprenticeship levy and the umbrella fees), 29K 'tax paid' (PAYE) and 2.4K employees NI.

I am trying to estimate if it makes sense to switch to an outside IR35 contract paying 700 per day. Last time I was working outside IR35 (in early 2022) the corporation tax rate was 19%, not 25% like nowadays. Plus, it seems that it does not make sense to pay myself a salary given my take home from the umbrella so far, and have to pay myself only dividends. If I want to extract all the money left in the company after paying bills and taxes, I seem to end up with less take home than under my current contract.

The main reason I am exploring this outside IR35 option is that it is completely remote work, which I quite prefer to going to the office 3 times a week, even though it is very close.