Cash Flow - Holding Sufficient Funds To Cover CT Liability.

[northernladuk]

First off what a pimp says and what he delivers are two very different things.

Also yes i have had those offers over the years but put it in context of the OP. 6 months to get on his feet, no warchest, expects end to end work. None of the offers i had over the years would have helped that situation.

[Jog On]

On the flip side how many timea hve you had a pimp on the phone asking you if you'd consider going perm when your CV clearly states contract? Also how many clientcos have offered you a perm role?

[SueEllen]

Not sure how it would bugger up my chances of a permie role?!

There are a lot of companies out there who will not employ contractors or people who have run their own businesses regardless of how long they have done it.

For me it is at the moment and I hold no bones if anyone asks me, I needed one contract and I have it, it was a means to an end to get me out of a sticky situation.

If you are only doing one contract then you are better not advertising it as a contract role but just a role that didn't work out for some reason.

Obviously it helps if you can get a reference from someone in the company.

[SimonMac]

...and probably buggered up your chances of a permanent role? Good to see a professional at work anyway. Really helps make our case that freelancing is not about the money.

Not sure how it would bugger up my chances of a permie role?!

For me it is at the moment and I hold no bones if anyone asks me, I needed one contract and I have it, it was a means to an end to get me out of a sticky situation.

If in 6 months time I have enjoyed contracting I will look to stay on, I can be a bit more choosy and go for lower rates if its something that appeals to me.

[malvolio]

safe in the knowledge that 6 months contracting has sorted out a mess I had got myself into.

...and probably buggered up your chances of a permanent role? Good to see a professional at work anyway. Really helps make our case that freelancing is not about the money.

[SimonMac]

Surely you are working towards building yourself a good warchest up just in case the worst happens and you spend a good time on the bench. Your warchest should be big enough to cover this even if you go horribly wrong??

Also if you are taking so much out per month that you are worrying about CT I presume you are taking the maximum dividend possible. Not knowing your rate I guess this is more than 32k taking you in to the 25% tax bracket. Do you need to be taking so much out and not saving a warchest?

The company has more than one shareholder so not worried about hitting the upper tax bracket, I need to get as much money out of the company within the next 6 months and as soon as possible (hence why I am taking out dividends every month) If I am benched after this contract I am not really that fussed as I will just return to permiedom but safe in the knowledge that 6 months contracting has sorted out a mess I had got myself into.

[northernladuk]

Surely you are working towards building yourself a good warchest up just in case the worst happens and you spend a good time on the bench. Your warchest should be big enough to cover this even if you go horribly wrong??

Also if you are taking so much out per month that you are worrying about CT I presume you are taking the maximum dividend possible. Not knowing your rate I guess this is more than 32k taking you in to the 25% tax bracket. Do you need to be taking so much out and not saving a warchest?

[prozak]

You can use the money as you wish as long as you have it when due.

CT does not become a liability until you work out the total due.

You are correct that you cannot pay dividend unless you have profit or capital / retained profit

[TykeMerc]

You can do that, personally I wouldn't as I prefer to keep sufficient clear cash in the business accounts to pay any liabilities, but that's me being ultra cautious.

One mitigating factor to your proposed approach is your VAT and CT liabilities will reduce if you make a large business purchase as assuming it's business related and therefore allowable then there's less profit to be taxed and if >£2k the VAT is reclaimable.

[SimonMac]

This is all relatively new to me so I fear I am still making some mistakes but basically I work out my income/expenditure on a monthly basis so once an invoice is paid I hold back my liabilities for VAT (I’m flat rate), and at the end of the month take away any deductions for expenses etc to leave my interim profit, which I then calculate the Corp Tax, stash that and the VAT away in another account and then take the rest off as a dividend. The thing is I know I can’t take off dividends against future profits, but if I have a large purchase to make for the company can I use they money I have saved away for what I have worked out my Corporation Tax liability will be as technically that will only be profit at the end of the year, or because I have taken a dividend on the profit I have to show that I have enough in my business accounts to cover the liabilities.

I hope this makes sense