Redundancy then contracting

[psychocandy]

I am about to start a contract after being made redundant.

I have been made redundant and will be paid off to the tune of £105000 at the end of May. Obviously aside from £30K tax free, the remaining payment will take me over the 40% tax threshold for 2012/2013. Does this mean that any payments to myself from my limited company via salary or dividend will be taxed at 40%.

If so, can I retain the profits in the company until 2013/2014 when I will have a new tax allowance.

Any thoughts on the best way to handle this in a legitimate way would be really helpful.

Regards.
Dave

£100K redundancy. Nice one.

Need accountant to advise you on this one but yes you will have to pay tax. I'd keep it in company if I were you.

[IR35 Avoider]

Can you put 75K into a pension? (There is a 50K a year limit, but you may also be able to use unused allowances from three previous years.)

Alternatively, you could put you contract earnings there.

Or some combination of the above.

This will help with tax, though of course you may not want to postpone using the money until age 55.

If you are IR35-caught it may not be possible to postpone your earnings into a different year. In that case the pension option is particularly attractive, as pension contributions are treated the same as salary in reducing your IR35 liability.

It's possible that part of the redundancy payment could be paid directly into a pension. Not sure if there is NI on redundancy, if there is there might be additional savings from doing that. All ex-employer would have to do is fill in a simple form and write a cheque to your pension scheme.

[Kanye]

100k redundancy... Not so bad being a permie after all.

[Greg@CapitalCity]

Hi Vicenza,

Yes, that is correct. Any dividends or salary you take from your business will be taxed at the higher rate. If you don't need the money to live on, then retaining profits in the company until the new tax year starts will work - and yes, it is legitimate. You could also consider other things like contributing some of your company funds to your personal pension.

[northernladuk]

Step 1. Read the guides on the right. They will explain the different ways PAYE and divis are taxed

Step 2. Get an accountant. There are quite a few on here and there are some recommended on this thread. http://forums.contractoruk.com/accou...-security.html

PCG also have a list of accredited ones but some of our more esteemed accountants that post here are not on it.

Step 3. Speak to you accountant to get him up to speed with your situation, explain VAT and contractor taxation to you.

He can then take you through all the first steps and tell you what you need to know and what you don't know at present

[Vicenza]

I am about to start a contract after being made redundant.

I have been made redundant and will be paid off to the tune of £105000 at the end of May. Obviously aside from £30K tax free, the remaining payment will take me over the 40% tax threshold for 2012/2013. Does this mean that any payments to myself from my limited company via salary or dividend will be taxed at 40%.

If so, can I retain the profits in the company until 2013/2014 when I will have a new tax allowance.

Any thoughts on the best way to handle this in a legitimate way would be really helpful.

Regards.
Dave