Reply to: Accounting for contracts which are inside IR35 and outside IR35 in the same tax year

[Jessica@WhiteFieldTax]

Are you representing an accounting firm gow? If so, you should ask admin to change your username to reflect that.

Yes, I am... Will, do, Not sure if that is good or bad

[mudskipper]

The approach my firm takes...

Are you representing an accounting firm gow? If so, you should ask admin to change your username to reflect that.

[centurian]

What time of year your contract ends.

Something that is very often overlooked. If your contract is timed to end at a period when activity is low, you could find yourself on the bench for 2 months, or having to accept a much lower rate than was available 1 month earlier, or 2 months later.

[Jessica@WhiteFieldTax]

But, I can't find anything useful to help me with working out how I would calculate the tax, should I try or just sign up my limited company with some one like crunch.co.uk? Is it even correct to operate like this? Or would I be better offer closing the company and creating a new one with a new business account?

Its fine to swap between delcaring inside and outside IR35 in the same year, and if you are committed to contracting longer term then getting going with your own company now has merits - there is no need to consider closing down and restarting a company to swap between contracts.

The calculations aren't straight forward as there are so many permutations, you really need to get advice on your circumstances. The approach my firm takes is to pre review all clients in the January to March period to make sure points like these are swept up before the year end; most accountants should either do that for you automatically or on request. Most accountants work slightly differently, so ask them how they would handle an split year or advise you how to handle it, the response should instill confidence or ring alarm bells.

[captainham]

Could you perhaps PM a number to call you on for a little chat if I get some time.

Or get their number from their website???

[MoodyBlue]

Could you perhaps PM a number to call you on for a little chat if I get some time.

[Nathan SJD Accountancy]

Or you could pick up the phone and speak to some accountants... Speak to the professionals.

[MoodyBlue]

Thanks for the tips on accountants. Had asked about crunch.co.uk but no one has commented about them so I'll give them a miss.

[northernladuk]

Thanks, yes I've been using those calculators with rates of £380 or £400 per day which I think is realistic. I'm pretty good at what I do, but new to contracting but I wouldn't think that matters, I hope it doesn't.

It did to me when I started. I struggled with the first few contracts and I believe this was because I was seen as a risk being a new contractor. Did I have the right mindset to jump in and deliver, take the stick that contractors can get, be professional and see the contract through or jump ship when a better rate appears. Unfortunately we do have people who would quite happily welch on a contract over and over just because they can get a better rate or gig near to home. Why pick me fresh out of permie land when there were 10 other peopl equally skilled with years of proven contracting behind them.

Back to the original question;

Can any one write a fairly simple example of how to calculate the tax for a inside ir35 contract £400 for 6 months and an outside ir35 contract at £400 for 6 months in the same tax year? I'm just interested to learn about how to calculate this. The calculators don't really explain what the calculation is that they do.

You could try google for sites like this

How much more tax do you pay if you are caught by IR35?

Or you could pick up the phone and speak to some accountants. You are going to need one if you go contracting anyway so why not start now. The guys from InTouch (Sally, Clare and Craig) are great, as is Alan from Nixon Williams and some other smaller accountants that regularly give advice on here for free. SJD are the biggest (who i am with) and do post from time to time.

Best not to try plan a huge upheavel in lifestyle and income using numbers on a free public forum. Speak to the professionals.

[MoodyBlue]

Thanks, yes I've been using those calculators with rates of £380 or £400 per day which I think is realistic. I'm pretty good at what I do, but new to contracting but I wouldn't think that matters, I hope it doesn't.

Back to the original question;

Can any one write a fairly simple example of how to calculate the tax for a inside ir35 contract £400 for 6 months and an outside ir35 contract at £400 for 6 months in the same tax year? I'm just interested to learn about how to calculate this. The calculators don't really explain what the calculation is that they do.

[northernladuk]

There are a lot of calculators on this site here...

Calculators

[northernladuk]

Yeah - I agree, I am still thinking like a permie I guess. But I'm looking at it as an average, is there a better way to calculate income over a year through contracting?

Not really, who knows if you can get a contract or not. Being a newbie you are a risk to clients so will generally pick someone with a lot more experience but you could be niche or an interview genius. There are other factors such as wether you are prepared to travel, what time of year your contract ends, what the rate of your next gig will be, how good are you at negotiating so you don't get had over by your accountant etc..

You could do a bit of research on jobserve or something and get an average rate per day for your skillset and work a 10 month year and a full year and plump somewhere in the middle but as I say it can easily go either way. There are people on this board right now that have been on the bench 4 months + and people that have had to go back permie because they couldn't find something. On the flip side there are people who have been in well paid gigs for a couple of years. Who knows.

There are also calculators around that will work out what your take home could be for a particular rate. Do a search for contractor calculators. Again they don't paint the whole picture so use as advice rather than as gospel.

[MoodyBlue]

You don't count contract money as p/a. Your next contract maybe more/maybe less. It is a day rate for the duration of the contract (which also isn't always as advertised for one reason or another). If you do go contract you need to drop all the permie thinking such as this.

Yeah - I agree, I am still thinking like a permie I guess. But I'm looking at it as an average, is there a better way to calculate income over a year through contracting?

[northernladuk]

Indeed, I'm in no fantasy about contracting. I do have a warchest, it'll cover at least 8 months sitting on my arse. What you say is so very important though. Since the contract I have is in IR35 (and I don't think I can make the contract or the work practice ouside of IR35) I'll be taxed a lot. I'm still weighing up whether the ~£10k p/a is worth the hassle/risk.

You don't count contract money as p/a. Your next contract maybe more/maybe less. It is a day rate for the duration of the contract (which also isn't always as advertised for one reason or another). If you do go contract you need to drop all the permie thinking such as this.

[MoodyBlue]

Don't forget that the chance of getting end to end contracts, particularly if you are new isn't high so you will need a warchest to back you up if you can't find something for a couple of months. It isn't all as rosey as you think so plan on only working 10 months of the year and if you get a full 12 months in then treat that as a bonus.

I presume you won't have a big warchest so your first contract will be focussed on getting some savings so I very much doubt if you do it properly your first month will net you more than your permie in your pocket but it is a short pain to a long career in contracting.

Indeed, I'm in no fantasy about contracting. I do have a warchest, it'll cover at least 8 months sitting on my arse. What you say is so very important though. Since the contract I have is in IR35 (and I don't think I can make the contract or the work practice ouside of IR35) I'll be taxed a lot. I'm still weighing up whether the ~£10k p/a is worth the hassle/risk.