Newbie Help - Contract work as well as permanent job

[SallyPlanIT]

Hi,

Thanks for the reply - The contract is definitely outside IR35. It is a fixed term project delivering an agreed service.

Then limited company is the best option saving you both tax and NICs on dividends. You can do an incorporation within 24 hours, bank account around three working days and then you're ready to go. VAT and PAYE applications take longer to come through, but won't hold up you invoicing.

Good luck

[GB2408]

You should have the choice of either an umbrella company or limited company. With this level of income, if the contract were to be outside of IR35 then ltd company is the best route as you could take dividends which the higher tax rate is 32.5% as opposed to 40% on earned income through PAYE.

However, that depends on IR35.

If you are inside IR35 then we have a calculator comparison between umbrella and limited that you fill in a quick form and it will email you the calculation. Please feel welcome to use it, it's on our website, please PM me if you need a link.

Hi,

Thanks for the reply - The contract is definitely outside IR35. It is a fixed term project delivering an agreed service.

[SallyPlanIT]

OK.. There has been a few changes to this. Turns out the agency cannot pay to a sole trader only to a LTD.

I need help working out what I will take home!

The contract is still £300 a day but will be 3 or 4 days a week and will now go on for around 25 weeks.

Is it worthwhile setting up my own LTD?

As I already earn around 42K (based on the last couple of years, and my projection for this year.. But it will be a minimum of £37K-ish) from my permanent role, what can I legally take home from the £300 a day contract?

I would also be claiming £80 a day in fuel and £30 in other expenses (roughly - Parking, meal, and have included accounts fee etc).

Does it mean I will only be taxed on £190 a day? If I already pay tax and NI on a permanent role would I be able to pay myself the £300 in just expenses and dividends?

You should have the choice of either an umbrella company or limited company. With this level of income, if the contract were to be outside of IR35 then ltd company is the best route as you could take dividends which the higher tax rate is 32.5% as opposed to 40% on earned income through PAYE.

However, that depends on IR35.

If you are inside IR35 then we have a calculator comparison between umbrella and limited that you fill in a quick form and it will email you the calculation. Please feel welcome to use it, it's on our website, please PM me if you need a link.

[GB2408]

OK.. There has been a few changes to this. Turns out the agency cannot pay to a sole trader only to a LTD.

I need help working out what I will take home!

The contract is still £300 a day but will be 3 or 4 days a week and will now go on for around 25 weeks.

Is it worthwhile setting up my own LTD?

As I already earn around 42K (based on the last couple of years, and my projection for this year.. But it will be a minimum of £37K-ish) from my permanent role, what can I legally take home from the £300 a day contract?

I would also be claiming £80 a day in fuel and £30 in other expenses (roughly - Parking, meal, and have included accounts fee etc).

Does it mean I will only be taxed on £190 a day? If I already pay tax and NI on a permanent role would I be able to pay myself the £300 in just expenses and dividends?

[GB2408]

Hi again all,

Thanks for the help. I have opted to register as a sole trader as this is the cheapest in terms of no start-up costs etc. The contract employer is OK with this.

I have written approval from my manager in my permanent role to do this work, bonus

The contract is 3 - 4 days a week and will return around £8K. Due to the location I will rack up around 200 miles per day which, claimed back at 40p a mile, will equate to around £2K plus other expenses (meals whilst over there etc) I will therefore only be liable for tax on around £5.5K.

This very narrowly puts me into the higher rate tax bracket but only just, I can live with 40% tax on the last couple of £K.

Roll on next week

[SallyPlanIT]

You'll complicate matters by going through your buddy's company as he will need adequate insurance cover in case he gets sued for your work (not saying it would be defective but you have to think of this scenario). He'll also be your employer and will have to add you to his payroll. Would he be willing to do that?

Anyway, it would be no different in terms of pay and would probably be cleaner if you considered this option to go brolly.

My 2p's worth would be to set up a limited company and take the lot out as dividends as and when you need it. You can either have a couple of grand as salary or no salary (up to you) at all. It's more tax efficient as you'll only be paying 25% tax on dividends as oppose to 40% plus NIC via your mates company or brolly.

The hassle and cost of running a ltd company alongside your permanent work isn't a great.

You pay 32.5% higher tax rate on dividends when you go over £43,875 . 10% is a tax credit when the dividend is raised, the other 22.5% is due the January after the 5th April tax year end. There is no national insurance to pay.

Does your employment with your permanent work allow you to work elsewhere? best check the small print.
A limited company is definitely the best route if you are outside IR35.

[Wanderer]

sole trader?

That's probably not a bad move if the client will let you do it (Agencies generally won't). Don't forget to put money aside or you will get a frightening tax bill.

[GB2408]

Thanks for the replies.

I contacted SJD accountancy for some advise and they suggested I register as a sole trader? This way the money gets paid direct to my bank account and they just send me a tax bill at the end of the year. They said for a short term contract like this where I won't be doing another contract after, the setup costs and paperwork involved in setting up my own LTD isn't worth it.

Not sure if this is the best way to do it...

Does anyone go through an Umbrella?

[Lion]

I am in a similar situation. I have a short term contract offer although I am already working as permanent. The contract is full time. Could I just take a unpaid leave for 3 month and be back after that without notifying my current permanent employer?

I intend to use umbrella company.

[Fred Bloggs]

IMO, the OP needs to form a Ltd Co and just not draw any income from it at all. He can use this money to build a war chest at which point the OP should be comfortable enough to go full time contracting. Drawing income whilst in full time permie employment is just plain daft in these circumstances in my opinion. The other alternative to this scenario would be to pay all the contract income into a SIPP, but if the OP is a young'un this may not be so attractive as my 1st suggestion. HTH.

[Wanderer]

As it is a short term (3 months) contract will I be best going through an umbrella company, and where will I stand (in terms of tax rate) if I do this whilst maintaining my current permanent role (doing both).

My permanent role returns roughly £35K - £38K p.a and the contract will be in the region of £1K per week.

Umbrella is the easiest but that's going to put you smack into higher rate tax bracket at 40% tax, plus employer's NI, plus employee's NI. You are going to pay about 60% tax on this income through an umbrella.

You may be best, tax wise, to form a LTD though it's a lot of admin and accountants will cost you ~1,000 for the year.

Check that your current employment contract doesn't prevent you from having a second job too.

Good luck!

[Stag Cozier]

Hi,

Yeah it is working 2 evenings and 1 weekend day a week. Can't say too much in case anyone on here is doing it as well

My mate who is also doing the contract is a full time contractor with his own LTD - Would it be easier to go through his company?

You'll complicate matters by going through your buddy's company as he will need adequate insurance cover in case he gets sued for your work (not saying it would be defective but you have to think of this scenario). He'll also be your employer and will have to add you to his payroll. Would he be willing to do that?

Anyway, it would be no different in terms of pay and would probably be cleaner if you considered this option to go brolly.

My 2p's worth would be to set up a limited company and take the lot out as dividends as and when you need it. You can either have a couple of grand as salary or no salary (up to you) at all. It's more tax efficient as you'll only be paying 25% tax on dividends as oppose to 40% plus NIC via your mates company or brolly.

The hassle and cost of running a ltd company alongside your permanent work isn't a great.

[GB2408]

You got a part time contract that you can fit in around a full time job for 1K a week? F... me! Way to go fella. I would have said umbrella for sure for the short term of it and costs to set up LTD and shut it down etc but at 1K a week you will be missing out on some nice money. Need to do the sums on that one and I can't help at that level of detail sorry.

Edit : saying that the hassle of setting a LTD up isn't going to fit in well with your time if you are doing a part time and full time job I guess. By time you got your head around it all your done.

Hi,

Yeah it is working 2 evenings and 1 weekend day a week. Can't say too much in case anyone on here is doing it as well

My mate who is also doing the contract is a full time contractor with his own LTD - Would it be easier to go through his company?

[northernladuk]

Hi All,

I have read and searched for similar questions but have not been able to find anything.

I work in a permanent role but I have been offered a contract working OOH (part time).

What's the best way for me to do this in terms of tax? As it is a short term (3 months) contract will I be best going through an umbrella company, and where will I stand (in terms of tax rate) if I do this whilst maintaining my current permanent role (doing both).

My permanent role returns roughly £35K - £38K p.a and the contract will be in the region of £1K per week.

Any help is much appreciated.

Thanks!

You got a part time contract that you can fit in around a full time job for 1K a week? F... me! Way to go fella. I would have said umbrella for sure for the short term of it and costs to set up LTD and shut it down etc but at 1K a week you will be missing out on some nice money. Need to do the sums on that one and I can't help at that level of detail sorry.

Edit : saying that the hassle of setting a LTD up isn't going to fit in well with your time if you are doing a part time and full time job I guess. By time you got your head around it all your done.

[GB2408]

Hi All,

I have read and searched for similar questions but have not been able to find anything.

I work in a permanent role but I have been offered a contract working OOH (part time).

What's the best way for me to do this in terms of tax? As it is a short term (3 months) contract will I be best going through an umbrella company, and where will I stand (in terms of tax rate) if I do this whilst maintaining my current permanent role (doing both).

My permanent role returns roughly £35K - £38K p.a and the contract will be in the region of £1K per week.

Any help is much appreciated.

Thanks!