Understanding company structure and finances

[MarillionFan]

Sorry. Lot's of pedantic nonsense on this thread. I hope I can answer your question.

So I understand from your original post that your partner is ill. From that perspective you are giving the impression that you would like to help out and use their tax allowance in some way.

In addition, you said you had a 12 month contract.

Normally contractors will work on the basis of 40 - 44 weeks of contracting work per year. Or 200 - 220 billing days out a theoretical maximum of 260. Take off 10 days for B/H's so you are working on 250 days. So your range can be 200 - 250 depending on the level of work you wish to undertake / account for sickness.

Then account for travel & subistence. Most calculators will base on £3000 per year, and that's fine. So work on that basis.

On the whole. You will have to pay Corporation Tax. This is 20%. (I am going to base this on being outside of IR35).

So let's assume that your partner will do your 'book-keeping & invoicing'. Most contractors will pay their partners the taxable allowance of £6750 p/a.

Therefore you can both earn the first £6750 with no tax/NI.

Then follow that with retaining 80% of your X No.Days x Day Rate - Expenses(£3000 after VAT) - £6750 x 2.

If your 80% profit is > £38k per year(there will be additional tax), so therefore use your partners allowance.

Allow £1000 per year(maximum) for accountancy fees.

Very basic. But hope that sorts out the plug-ins for your spreadsheet calcs.

[mudskipper]

The contractor calculators don't cater for income splitting. Assuming no other income, I guess you could halve your rate, stick in the figures, and double the result.

Most of the contractor accountants will talk to you before you sign up, so worth checking with the pros (bearing in mind they are trying to sell you their services!)

[Wanderer]

In doing this, setting us both up with a salary, pension scheme, and dividends to provide our income from the company (can both sets of monies then be paid into a joint account, or does it have to be seperate?)

Joint account is fine.

I know what I am capable of gaining daily rate rise (offers on the table, confirmed amounts) but I need to understand what that will translate into after it goes through the confusing machine that is dividend tax, corporation tax, vat, etc.

If your partner is on a non means tested benefit then they may still be able to claim the benefit while taking a dividend from your company. If you pay your partner a salary then they will have to stop claiming the benefit. Depending on how much benefit your partner receives, it may not be worth them drawing a salary. Get professional advice on this first though.

I am aware that there are various calculators which I have had a play with, but I want to be sure of the end financial result. Any recommendations, guidance, or advice is greatly appreciated.

The IR35 calculators will give you a pretty good indication. From permie to contract a ballpark figure is to take permie salary / 1,000 = hourly rate. So a £50k salary would equal a £50/hour rate. Also remember that you will have to have 3 to 6 months worth of cash at hand to cover holidays and unemployment/sickness etc. If you are the type of person who lives hand to mouth and spends all their money every month then contracting is NOT for you. You must have a "war chest" to tide you over during the hard times. If you don't have that then don't go contracting.

A "12 month contract" is a good start but a wise man here once said that "a contract is only as long as your notice period". It can be terminated at any time and you are out on your arse with NO compensation. No one will give a tulip about you when you're unemployed and you won't get any sympathy from the hardened folks here when your contract gets terminated after a month so don't come crying to us, it's a tough business.

apologies if I appeared to be money grabbing or blind to the risks

I'm in this for the money, I don't mind admitting that.

If you want a good kick start into contracting then check out the PCG's website too. They will do you a package to include everything you need and even if you don't go with them you can use their offerings as a checklist for the insurances etc that you need in place and get a ball park idea of how much it all costs.

Get yourself an accountant from the outset and get them to sort out your stuff for you. They are happy to do it and it saves you making expensive mistakes and upsetting HMRC by filing your paperwork late or wrong and paying too much tax.

Sounds like you've done your research, good luck!

[RichardCranium]

I'm getting misunderstood here :-)

Welcome to CUK, the national trainspotters' and sofa review website.

The question here is to understand the ballpark amount extra that can be achieved doing.things 'properly' opposed to going umbrella

There are IR35 calculators out there. If you use one of them to compare inside v outside IR35, you can sort of assume the inside IR35 = take home through a brolly. But you will need to deduct the £15 per week (or whatever) the brolly charges, and the £1,000 or so per annum an accountant will charge you using the LtdCo route.

apologies if I appeared to be money grabbing

What other motive is there?

[malvolio]

I'm getting misunderstood here :-)

The question here is to understand the ballpark amount extra that can be achieved doing.things 'properly' opposed to going umbrella

I totally accept there are all sorts of positives and negatives compared to permanent employment, apologies if I appeared to be money grabbing or blind to the risks

About 20% on net take home on average. Why is in the guides you have read. But if you are doing it for the money, you're doing it for the wrong reasons.

[Workingitout]

I'm getting misunderstood here :-)

The question here is to understand the ballpark amount extra that can be achieved doing.things 'properly' opposed to going umbrella

I totally accept there are all sorts of positives and negatives compared to permanent employment, apologies if I appeared to be money grabbing or blind to the risks

[malvolio]

If you're that concerned about how much a year you're going to make, stay permie. We don't get the rates we do as a right, we take risks - which includes not getting any pay at all

HTH

[Workingitout]

Thank you for the reply.

I have a 12 month 'as certai- as extend for another 12' gets role on the table, daily rate confirmed, and i think accounting for some time off 45 weeks of the year contract I would guess for working.

I'm aware I need to look at setting up insurance, paying an accountant for audit etc, but I'm just curious how much more I can get over using an umbrella doing it the way I mentioned with the details i have just added.... I'm not putting a daily rate figure in here for various reasons, but I certainly think its a fair rate for my skills.

[RichardCranium]

want to be sure of the end financial result.

Everything up to that point made sense. You've done the research, seem to know what you need to do, then spoiled it.

If you want to be sure of the end financial result, then you have to know when you will get a gig, what rate you will get, and how much time you will spend on the bench each year. Without a crystal ball, that can't be done.

Ultimately, it is a risk, just as starting any small business is a risk. And if you're not willing to take that risk, then...

'OMG ITS NOT FOR YOU!'

Once you've worked out what a typical rate is for the kind of role you think you can get, then plucked a number out of the air for bench time, then fed the result into a calculator, then you will know as much as anyone can know in advance of jumping in the deep end and seeing if you can swim.


Other than find the necessary confidence, you seem to have done everything right, so far.

[Workingitout]

Hi All,

I guess that ultimately, I'm looking to find an accountant or someone who can discuss a proposed situation with me.

Currently a Perm, looking to potentially go contracting and weighing up the pro's and con's. I guess the big thing to say is please don't turn this into a 'OMG ITS NOT FOR YOU!' or 'HAVE YOU EVEN GOT A ROLE?!' thread.

My current situation is that I work, but unfortunately due to medical reasons my other half doesn't. As a result of this, I'm thinking that there may be potential tax advantages that we should explore when comparing the numbers.

After reading the guides, various posts, and plenty of conversations with good friends who are contractors I *think* I know how I would like to form things, but I need to understand the financial situation prior to doing anything drastic and becoming a contractor.

Roughly, I think the way I need to do things is

Form Ltd company, listing both myself and my other half as directors and equal share holders. My role within the company would be going out to the client sites, and my other half dealing with paperwork for the company, finance sheets etc.

In doing this, setting us both up with a salary, pension scheme, and dividends to provide our income from the company (can both sets of monies then be paid into a joint account, or does it have to be seperate?)

I know what I am capable of gaining daily rate rise (offers on the table, confirmed amounts) but I need to understand what that will translate into after it goes through the confusing machine that is dividend tax, corporation tax, vat, etc.

I am aware that there are various calculators which I have had a play with, but I want to be sure of the end financial result.

Any recommendations, guidance, or advice is greatly appreciated.