Reply to: How much rate rise to cover no expensese after 2 year rule kicks in?

[SpontaneousOrder]

** deleted because I'm being dense** I reckon the answer to the original question is about 35 quid.

[unixman]

No. If you're already a higher rate tax payer, then profit goes up by £1000. CT = £200 leaving £800. That £800 taken as dividend is taxed at an effective 25% leaving £600.

600 is 400 less than 1000.
400 / 20 days = £20 per day.

Not really. What you say is correct only if your dividend so far paid in the tax year is less than 27k or so. Above that threshold, further dividends push you into the higher rate, and incur effective tax 40% (20% corporation tax + 20%-ish higher rate dividend tax). That's why most of us operate a low salary model then pay dividends only up to 28k or so. Also, most of us probably reach that threshold every year.

So yes you can pay yourself a divi to make up for expenses but the divi will be taxed at 40%, not 25%. For most of us.

[rob s]

"I was giving you a discounted B2B rate for the first 2 years because the government lets me pay reduced tax."

[SpontaneousOrder]

You need £1000 out as a dividend to pay the expenses, not £800.

Does that make £22.50 then? £200 CT plus £250 on the divi of £1k ? / 20 days.

That's assuming you don't already take out 100% so there is a full 1k to take out as divi.

[SpontaneousOrder]

You need £1000 out as a dividend to pay the expenses, not £800.

good point.

[TheFaQQer]

No. If you're already a higher rate tax payer, then profit goes up by £1000. CT = £200 leaving £800. That £800 taken as dividend is taxed at an effective 25% leaving £600.

600 is 400 less than 1000.
400 / 20 days = £20 per day.

You need £1000 out as a dividend to pay the expenses, not £800.

[SpontaneousOrder]

True, it has to be "grossed up".

Meanwhile, the company profit increases by £1000 a month, so corporation tax goes up by £200. Your company is worse off by £200 and you are worse off by £666. (all other things assumed equal)

So is the answer 886/20 = £44.30 ?

No. If you're already a higher rate tax payer, then profit goes up by £1000. CT = £200 leaving £800. That £800 taken as dividend is taxed at an effective 25% leaving £600.

600 is 400 less than 1000.
400 / 20 days = £20 per day.

[SpontaneousOrder]

Complaining about the 24 month rule is like complaining over the bedroom tax; you're not losing out, you're just winning slightly less than you used to. You're still on top.

Depends on how you define 'winning'. It's not some lucky windfall - it's a business expense. As soon as it stops being a business expense, you're losing.

[BolshieBastard]

Currently claim around £1000 a month for accommodation, mileage and subsistence.
When this all stops after the 2 year rule kicks in, how much extra per month would you need to cover it with a rate rise?


Edit: Bollocks - typo in header!

Hahahaha! You think the client never mind the agent is concerned about your expenses!?

You might get a 100 quid a week if you're plucky enough.

[Sausage Surprise]

Why not ask to work 2 days on site, 3 days at home. Then the 24 month rule doesn't apply.

Can't access the apps that I test from home, so that's a non starter unfortunately.

[d000hg]

Has anyone EVER managed to get client to agree to this based on contractor explaining the 24 month rule to them?

Can just see it.

Contractor: Thing is for 2 years I've managed not to pay tax on all my travelling costs and saved myself couple of £100 a month in tax.

Client: You mean travel to work like us permies pay for out our net salary? That must be nice for you.

Contractor: Yes. Thing is I want £x per day to cover this or I'll be worse off.

Client: So you've been here 2 years, getting x times more than the permies, you've been milking the tax system, and now its over you want us to pay more?

Contractor: Yes please.

(BTW. Not saying I agree with this conversation but this is how client may think rightly or wrongly. 90% IMHO seem to think the start rate is the rate forever).

Why do you need to tell them your life story. "My costs have gone up, so I need to charge you more"

[NickNick]

Has anyone EVER managed to get client to agree to this based on contractor explaining the 24 month rule to them?

Can just see it.

Contractor: Thing is for 2 years I've managed not to pay tax on all my travelling costs and saved myself couple of £100 a month in tax.

Client: You mean travel to work like us permies pay for out our net salary? That must be nice for you.

Contractor: Yes. Thing is I want £x per day to cover this or I'll be worse off.

Client: So you've been here 2 years, getting x times more than the permies, you've been milking the tax system, and now its over you want us to pay more?

Contractor: Yes please.

(BTW. Not saying I agree with this conversation but this is how client may think rightly or wrongly. 90% IMHO seem to think the start rate is the rate forever).

I did it at a client site when I was approaching 2 years and they asked if I'd be interested in staying on beyond that. I explained about the 2 years rule and how my current expenses were around 50 a day which is the hit I was going to take if I took the extension. (I knew that it was actually ony the tax saving on that I was going to get hit with) and they wanted me to stay so we agreed on £44 extra a day on the rate.

[unixman]

Didn't work for me when I tried it...I don't think clients give a stuff about this tbh, whether you explain it or not to them. Luckily my client has other sites which I need to go to...so happy to claim mileage/subsistence on those occasions.

True. but the client and/or agency might find it more convenient to agree to a small rate increase than have the expense and bother of finding and hiring a new contractor (who might charge the higher amount anyway), then waiting while he gets up to speed on the client systems.

Obviously your request must include a real intention to leave (not renew). They aren't going to give you something for nothing.

[Grinder]

Why not ask to work 2 days on site, 3 days at home. Then the 24 month rule doesn't apply.

[SteelyDan]

Has anyone EVER managed to get client to agree to this based on contractor explaining the 24 month rule to them?

Can just see it.

Contractor: Thing is for 2 years I've managed not to pay tax on all my travelling costs and saved myself couple of £100 a month in tax.

Client: You mean travel to work like us permies pay for out our net salary? That must be nice for you.

Contractor: Yes. Thing is I want £x per day to cover this or I'll be worse off.

Client: So you've been here 2 years, getting x times more than the permies, you've been milking the tax system, and now its over you want us to pay more?

Contractor: Yes please.

(BTW. Not saying I agree with this conversation but this is how client may think rightly or wrongly. 90% IMHO seem to think the start rate is the rate forever).

Didn't work for me when I tried it...I don't think clients give a stuff about this tbh, whether you explain it or not to them. Luckily my client has other sites which I need to go to...so happy to claim mileage/subsistence on those occasions.