contract to perm

[Greg@CapitalCity]

Can anyone let me know if there are any tax implications of taking a perm role and having previously had a ltd company?

Yes, as Wanderer says, going from contractor to perm in the same tax year can come with a nasty sting.

As an example lets say that by Jan 2012 you have earned £6,000 in salary, and been paid £30,000 in dividends. So far so good, and no personal tax liability. Then commencing 01Feb2012 you take a permanent role paying £60,000 pa (so you are paid £10,000 gross from 01Feb2012 to the end of the tax year), and your employer deducts PAYE and NI at the correct amounts. The effect of this will be to push some of your dividend payments into the higher rate earnings bracket and you are now faced with a tax liability on your dividends of over £1,500.

To determine if this will happen to you;
(1) Add your total expected ltd company salary + total expected gross salary in new perm role paid to 05 April 2012;
(2) Deduct the result of (1) from £42,475;
(3) Multiply the result of (2) by 9/10;
(4) If your ltd company net dividends paid exceeds the result from (3) you will most likely pay additional tax on your dividends - best action is to stop paying yourself any further dividends, and close down your company using ESC C16;

[Wanderer]

Can anyone let me know if there are any tax implications of taking a perm role and having previously had a ltd company?

Yes, definitely. I would be inclined to retain as much money as you can in the company (don't take any more dividends/salary) and then apply for ESC-C16 when you go permie and shutdown the company.

Also remember that if you have paid yourself up to the higher rate tax limit for this tax year then you will be hit with a lot of tax from your new permie job or in your self assessment.

You should get professional advice on this so speak to your accountant and tell them what you are proposing to do, ie maximise retained funds for an ESC-C16 company shutdown and ask them to calculate what your tax bill and net income would be for this financial year and next year if you went permie on XXX date at £YYY/year.

[MrRobin]

Only thing I can think of here is that if you have already taken dividends this year up to the higher rate threshold and were not planning on taking any more until the next tax year, then ordinarily you won't have any personal tax liability on your self assessment. Taking a permie job and being paid PAYE is obviously going to increase your annual income and therefore you will have a personal tax liability come April 2012.

It's harly a valid reason to be asking for more money though... it's akin to saying no I don't wan't a payrise because I'd have to pay more tax.

[Clare@InTouch]

Thanks Badger, I didn't explain factoring in the tax into the salary very well.

What I meant was, I was reading a thread about someone negotiating a salary after being perm there, someone was giving the guy some tips, one of them was along the lines of "i'm going to have to pay back a tax bill..." which prompted this question.

I have already set aside CT and VAT so I'm hoping there won't be any nasty surprises, I was just wondering if there was any additional taxes due.

Paying back tax would depend on your personal tax circumstances, it's always hard to compare yourself to someone else as they may have other circumstances that affected them that wouldn't apply to you (that they aren't aware of, or fail to mention).

It's easy enough to close your company, your accountant can talk you through it. It's a long process, but quite straightforward so expect it to take around 4 months from the time you close the company bank account. You'd be looking at extra accountancy fees of around £300.

[MiniMani]

You'll need to pay any VAT or Corp tax you owe. Don’t see why your new employer should be paying this but good luck trying to get them too.

As for shutting down your Ltd you can keep it open in a non trading state but you will have to submit annual returns even if you are not trading which may mean accountants fees. If you have no intention of contracting again then close it down. Your accountant should guide you through this process.

Thanks Badger, I didn't explain factoring in the tax into the salary very well.

What I meant was, I was reading a thread about someone negotiating a salary after being perm there, someone was giving the guy some tips, one of them was along the lines of "i'm going to have to pay back a tax bill..." which prompted this question.

I have already set aside CT and VAT so I'm hoping there won't be any nasty surprises, I was just wondering if there was any additional taxes due.

[TheFaQQer]

If your current contract essentially becomes your permanent place of work, then you can't claim expenses for getting there.

[badger7579]

You'll need to pay any VAT or Corp tax you owe. Don’t see why your new employer should be paying this but good luck trying to get them too.

As for shutting down your Ltd you can keep it open in a non trading state but you will have to submit annual returns even if you are not trading which may mean accountants fees. If you have no intention of contracting again then close it down. Your accountant should guide you through this process.

[MiniMani]

Hi all,

I am considering taking a perm opp at the place that I am currently contracting. I will have been contracting for about 8-9 months by the time I'd take the perm role (early next yr)
Can anyone let me know if there are any tax implications of taking a perm role and having previously had a ltd company? I saw somewhere someone mention having to pay back a lot of tax and having to have negotiated that into their salary.

I'd also have to close down my limited company if I decided to go perm I'm guessing, which I'll be reading up on seperately

Help appreciated