Reply to: Umbrella->Limited : Getting nearly everything in dividends

[Andrew@Wisteria]

sorry I wasnt very clear. but the thread you are talking about actually answer my question !

Typically Umbrella's are very tax inefficient - the amount you pay in E'rs & E'ees NIC will wipe out a big chuck of your contract rate. Accountant fees can be comparable to Umbrellas fees (unless you are only contracting for a short period say 3 months) - Furthermore, as a Ltd you can register for the Flat rate VAT scheme which will probably pay for the accountant fees of running a LTd if longer contract - However obviously there is more record keeping / administration to do! The tax savings also depend on your daily rate.

[jamesbrown]

Could be my dodgy maths/tax knowledge again:

I thought I could take home £35000-ish as the limit before hitting higher rate tax.
Apparently that limited is £41000-ish.

Meaning I can take home £6K more than I thought.

Ergo, £500 a month?

(I should caveat this: I start contracting next week, so my discussions with my accountant have been somewhat theoretical at the moment).

Brett - I knew about extended the band, but my brain frazzled at the various computations, so I'll leave that to my accountant.

Andy

The discrepancy in your accounting was the Personal Allowance. I don't know your situation, but the standard allowance for 2013/14 is £9440, not £6000. Anyway, best of luck working through this with your accountant who should be able to provide hard info. based on your situation as of now (even if you haven't begun contracting yet).

[Brett at Nixon Williams]

If you provide your accountant with all details about your earnings, discuss the salary options they should be able to outline the most efficient way forward. They should also be able to advise you of any likely tax you may need to save.

I hope all goes well.

Brett

[blakeyuk]

Not sure where the £500 comes from, but your allowance is relevant

Could be my dodgy maths/tax knowledge again:

I thought I could take home £35000-ish as the limit before hitting higher rate tax.
Apparently that limited is £41000-ish.

Meaning I can take home £6K more than I thought.

Ergo, £500 a month?

(I should caveat this: I start contracting next week, so my discussions with my accountant have been somewhat theoretical at the moment).

Brett - I knew about extended the band, but my brain frazzled at the various computations, so I'll leave that to my accountant.

Andy

[Brett at Nixon Williams]

Also note that the basic rate band is extended for the gross value of any personal pension contributions or gift aid payments made and hence will allow you to take a slightly higher dividend.

Brett

[jamesbrown]

I'm such a doofus sometimes. I'd misunderstood what your personall allowance was for.

Which is great, as means an extra £500 a month take-home for me :-)

(I think).

Cheers guys,
Andy

Not sure where the £500 comes from, but your allowance is relevant

Anyway, just remember to use gross income amounts when comparing to the tax thresholds. This includes grossing up any net dividends paid (/.9 as indicated by Brett @ NW). Naturally, your accountant will help with all this.

[blakeyuk]

I'm such a doofus sometimes. I'd misunderstood what your personall allowance was for.

Which is great, as means an extra £500 a month take-home for me :-)

(I think).

Cheers guys,
Andy

[TheFaQQer]

Hi Brett,

I've seen the £41,450 figure in a couple of places (eg, Tax facts | A short guide to tax rates and allowances), but I thought it was £32,010 (see https://www.gov.uk/income-tax-rates)

Where does the £41,450 figure come from?

Andy

Add the personal allowance of £9440 to the threshold of £32010 and you get £41450

[jamesbrown]

Hi Brett,

I've seen the £41,450 figure in a couple of places (eg, Tax facts | A short guide to tax rates and allowances), but I thought it was £32,010 (see https://www.gov.uk/income-tax-rates)

Where does the £41,450 figure come from?

Andy

The rates are for taxable income above your Personal Allowance. The standard Personal Allowance is £9440 for 2013/14.

[blakeyuk]

... the higher rate threshold for 2013/14 (£41,450 gross) as these would be free of further tax....
Brett

Hi Brett,

I've seen the £41,450 figure in a couple of places (eg, Tax facts | A short guide to tax rates and allowances), but I thought it was £32,010 (see https://www.gov.uk/income-tax-rates)

Where does the £41,450 figure come from?

Andy

[Brett at Nixon Williams]

To further the point mentioned regarding dividends if you have basic rate band remaining, it would make sense to declare and take dividends (profit allowing) to take you up to the higher rate threshold for 2013/14 (£41,450 gross) as these would be free of further tax.

Taking the assumption that you have had gross earnings of £12,000 in 2013/14 thus far, then this would leave £29,450 gross band available. The dividend that could be paid free of tax would be 90% of this, i.e. £26,505.

As it has been mentioned above, the accountant you appoint should be able to advise on this having looked at your personal situation.

I hope this helps.

Brett

[LisaContractorUmbrella]

Hi everybody,

I have been contracting for 5 months through an umbrella company and am now thinking of creating my limited company.

Given that :
my contract falls outside IR35
I am not interested in pension for the moment
Ive already earned a salary which is around the 10 12k braket that "most" accountant would suggest to extract as salary when I was working under my umbrella cie.

Could I potentially pay myself only in dividends when operating through my future Ltd company until year end (next April)? Or should I still pay myself with low salary (amount to be confirmed)?

I guess this is no definite answer to that question and this will have to be analyzed by my future accountant, but I wanted to have you guys point of view on the issue

Thanks!

Just as an aside - what makes you so sure you're outside IR35?

[luciddreamerfrench]

I thought we had some threads about moving from perm to contract mid year which is pretty similar is it not? From what I remember the advice was not to pay any more wages and stick to divis the rest of the year.

Found this which also throws in comments about already being in higher tax bracket which might apply.

http://forums.contractoruk.com/accou...scal-year.html



What does this mean? You mean if you were working under your LTD? You don't need an accountant for a brolly and have little choice what you are paid?

sorry I wasnt very clear. but the thread you are talking about actually answer my question !

[NCOTBAC]

I thought we had some threads about moving from perm to contract mid year which is pretty similar is it not? From what I remember the advice was not to pay any more wages and stick to divis the rest of the year.

Found this which also throws in comments about already being in higher tax bracket which might apply.

http://forums.contractoruk.com/accou...scal-year.html

Ive already earned a salary which is around the 10 12k braket that "most" accountant would suggest to extract as salary when I was working under my umbrella cie.

What does this mean? You mean if you were working under your LTD? You don't need an accountant for a brolly and have little choice what you are paid?

[jamesbrown]

No, you don't need to pay yourself a salary as an officer (Director) of YourCo unless you have a formal contract of employment (in which case NMW legislation will apply). In short, you can pay only dividends if it makes sense to do so (or leave everything in the company, if you prefer), and your accountant will advise on that. The part about "my contract falls outside IR35"; make sure you've had the appropriate contract reviews and your working practices are aligned. Also, make sure you understand the concept of a warchest. Getting a good accountant is a good start