Reply to: keep 75% with ltd co, 80% with umbrella?

[Waldorf]

But it would not be 485 per month – it would be much more – below are rough figures (don’t worry, I use an accountant so excuse me if below are wrong!)

In
11,550 Monthly Monies

Out
Expenses = 1,200 pm
Salary = 825 pm
TX & NI = 300 pm (estimate!)
Corp Tax = 1,845

Remaining = 7,380

Based on the above, after corporation tax, I would be able to take home the following:

825 salary
1200 expenses
7380 dividends (£5000 of which will be taxed at 20% - so reduces by £1000

Take Home = 6,560

Compared to 9,700 take home via ‘Choice Premier’ with only £350 per month being paid in tax.

I am staying Ltd, I like to sleep at night but you can see why the Umbrellas / EBT are so popular? (and I can dream of the holidays / ferrari’s!)

I think your figures a bit wonky?

I have just been messing about with this calculator - Contractor Accountant specialists UK | Accountancy Service for contractors | Accountancy Services UK | Take Home Pay Calculator UK. you seem to keep more than you think but likewise your figures imply that you will be working 264 days a year, which is probably too high considering 104 weekends and 8 bank holidays.

[SneakySimon]

To compare like with like you need to add your salary and expenses into your take home ( that what the "umbrella" will be doing)

So it's more like 8635.

Plus your Tax and NI are out, should be around 125 all in.
Also you havn't allowed for FRS VAT. Thats worth another 370 a month.

So as a rough estimate your Ltd take home should be around 9180.

Premier claim 9700 with 350 tax to pay

Add the 485 from the original 5% guestimate and it's pretty much there.

On top of that you havn't accounted for pension payments. If your ltd pays them there is no CT to pay on that *and* you reduce your personal tax liabilities thanks to lower divi payments. ( the tax saving is less than the pension payment so your overall divi payment falls).

If I ever complain about paying £126 a month to SJD, remind me of my back of fag packet calculations!

[DonkeyRhubarb]

I knew you were not stupid.

Perhaps I was 10 years ago though. All I can say is, with ir35, it seemed like a good idea at the time.

ir35 doesn't seem like much of a reason these days for using a scheme.

[AtW]

Anything which claims 80 to 85% retention will carry more risk. Is it really worth it if you're already achieving 75%?

And, by the way, the 80/85 figure doesn't tell the whole story either. Promoters of these arrangement typically charge 10%.

So HMRC only gets 5-10%. Do you think they'd be happy with that?

I knew you were not stupid.

[LisaContractorUmbrella]

"Premier claim 9700 with 350 tax to pay"

3.6% tax? Presumably on income earned in the UK by a UK tax payer? Seems too good to be true?

[DaveB]

But it would not be 485 per month – it would be much more – below are rough figures (don’t worry, I use an accountant so excuse me if below are wrong!)

In
11,550 Monthly Monies

Out
Expenses = 1,200 pm
Salary = 825 pm
TX & NI = 300 pm (estimate!)
Corp Tax = 1,845

Remaining = 7,380

Based on the above, after corporation tax, I would be able to take home the following:

825 salary
1200 expenses
7380 dividends (£5000 of which will be taxed at 20% - so reduces by £1000

Take Home = 6,560

Compared to 9,700 take home via ‘Choice Premier’ with only £350 per month being paid in tax.

I am staying Ltd, I like to sleep at night but you can see why the Umbrellas / EBT are so popular? (and I can dream of the holidays / ferrari’s!)

To compare like with like you need to add your salary and expenses into your take home ( that what the "umbrella" will be doing)

So it's more like 8635.

Plus your Tax and NI are out, should be around 125 all in.
Also you havn't allowed for FRS VAT. Thats worth another 370 a month.

So as a rough estimate your Ltd take home should be around 9180.

Premier claim 9700 with 350 tax to pay

Add the 485 from the original 5% guestimate and it's pretty much there.

On top of that you havn't accounted for pension payments. If your ltd pays them there is no CT to pay on that *and* you reduce your personal tax liabilities thanks to lower divi payments. ( the tax saving is less than the pension payment so your overall divi payment falls).

[Steven@Parasol]

I am staying Ltd, I like to sleep at night but you can see why the Umbrellas / EBT are so popular? (and I can dream of the holidays / ferrari’s!)[/QUOTE]

True umbrella companies are emplyment led solutions not tax led. These schemes etc are not umbrella companies.

Althouigh we do all sometimes get tarred with the same brush!

[SneakySimon]

485??

But it would not be 485 per month – it would be much more – below are rough figures (don’t worry, I use an accountant so excuse me if below are wrong!)

In
11,550 Monthly Monies

Out
Expenses = 1,200 pm
Salary = 825 pm
TX & NI = 300 pm (estimate!)
Corp Tax = 1,845

Remaining = 7,380

Based on the above, after corporation tax, I would be able to take home the following:

825 salary
1200 expenses
7380 dividends (£5000 of which will be taxed at 20% - so reduces by £1000

Take Home = 6,560

Compared to 9,700 take home via ‘Choice Premier’ with only £350 per month being paid in tax.

I am staying Ltd, I like to sleep at night but you can see why the Umbrellas / EBT are so popular? (and I can dream of the holidays / ferrari’s!)

[DaveB]

Just checked out that link on the right - they pay a salary and then the rest as a forex loan - on a 525 contract, i would take home 9,700 per month (with 1200 expenses a month) after tax / fees etc - damn that is tempting!!!

But are you willing to take the risk for an extra £485 a month? (which is what the extra 5% works out to.)

[Steven@Parasol]

Just checked out that link on the right - they pay a salary and then the rest as a forex loan - on a 525 contract, i would take home 9,700 per month (with 1200 expenses a month) after tax / fees etc - damn that is tempting!!!

I think that is what Tract were doing as well.

http://forums.contractoruk.com/accou...anagement.html

[SueEllen]

Just checked out that link on the right - they pay a salary and then the rest as a forex loan - on a 525 contract, i would take home 9,700 per month (with 1200 expenses a month) after tax / fees etc - damn that is tempting!!!

I had an email from Accounting Web this morning (it's free to sign up to read their website) it said

HMRC cracks down on disguised remuneration
Paying employees through loans and trusts to avoid tax will be forbidden in most cases, according to new guidance on disguised remuneration provisions published by HMRC. Nick Huber reports.

There is more about it on this thread - http://forums.contractoruk.com/accou...-question.html

Or you can register and read it yourself here - Login to AccountingWEB | AccountingWEB

[SneakySimon]

80%

Just checked out that link on the right - they pay a salary and then the rest as a forex loan - on a 525 contract, i would take home 9,700 per month (with 1200 expenses a month) after tax / fees etc - damn that is tempting!!!

[DaveB]

Many umbrella companies advertise that you can keep 80% of your rate.

Through my ltd co I've been able to keep 75% of my rate in the form of salary, training, dividends and pension contributions.

Am I being a mug or do the umbrella companies who quote 80% only talk about salary + dividends to come up with 80%?

It's pretty well generally agreed that Ltd Co. with Salary + Dividend is the most efficient way of operating without running the risk of getting caught up in somehting like the BN66 problems. Anyone who is claiming better than 75% as a commercial offering will be relying on one of a number of "loopholes" to achieve it. This varies between loaded expenses claims (that may or may not be legitimate) to complicated offshore arrangements.

If you are happy to run the risk of a tax investigation or worse for the sake of an extra 5% then go for it. Otherwise carry on as you are and avoid the potential stress.

As other have said elsewhere, you can do much better than 75% with a Ltd. if you put more into a pension/SIPP, although this only really works for those who don't need to maximise their personal income to pay the bills etc.

EDIT: Ironically the ad running in the side bar when I typed this reply was for an Umbrella company offering an 80% return....

[contractor79]

Anything which claims 80 to 85% retention will carry more risk. Is it really worth it if you're already achieving 75%?

Well quite. My 75% is the figure after all the overhead costs - accountants, insurances and other expenses taken into account.

I don't know why people go with umbrellas. I find that ltd co is quite simple if you've a good accountant who will accept your invoices and bills on a monthly basis.

[DonkeyRhubarb]

Anything which claims 80 to 85% retention will carry more risk. Is it really worth it if you're already achieving 75%?

And, by the way, the 80/85 figure doesn't tell the whole story either. Promoters of these arrangement typically charge 10%.

So HMRC only gets 5-10%. Do you think they'd be happy with that?