Reply to: Newbie in contracting

[expat]

If you are within IR35, please ignore my previous calculations and insert the following:

£46,000 (Net income ex VAT)

5% allowed expenses = £2,300
...

If you still have the £4000 expenses that you mentioned before, and they are legitimate Schedule E expenses, then they do not form part of the 5% in the deemed payment calculation.

[Archangel]

i'm within ir35 as im gonna be in 1 or 2 locations during my contract me thinks

If you are within IR35, please ignore my previous calculations and insert the following:

£46,000 (Net income ex VAT)

5% allowed expenses = £2,300

Salary of £39,368 (£43,700 - 11% Employers NI of £4,332)

Income tax on £39,368 (assuming tax code of 603) = £6,665
Employees NI on £39,368 = £1,645.75

Total tax to be paid = £12,642

£12,642 is 27.5% of £46,000

So you need to keep back 27.5% each week for tax and pay your expenses and accountant etc out of your take home.

HTH

[pmeswani]

i'm within ir35 as im gonna be in 1 or 2 locations during my contract me thinks

Just out of interest, have you had your contract reviewed by a IR35 tax specialist? If so, then fair enough. However, just because you are going to be in 1 or 2 locations, doesn't necessarily mean your contract is within IR35.

[cykophysh39]

I have 2 Company Bank accounts.
1 . Trading account
2. Holding account

When I get paid every week, I always transfer my VAT charged and 30% of my weekly rate straight into my holding account and forget about it till they need to be paid. This way I know I have the money to pay always.

[kanulondon]

Take your company net weekly income (ex VAT) say £1000.

I work approx 46 weeks a year, so say £46,000 company income pa

Take off any legitimate expenses (I just charge mileage allowance) and accountancy fees say £4,000 pa and £1,000 pa respectively

Take off salary say £6,000 (no tax or NI due on this as below threshold)

Leaves £35,000 to pay corp tax on @ 21/22% so £7,525

Leaving £27,475 net dividend (no further tax to pay as this is below the £34,800 tax allowance)

So you would need to allow for £7,525 tax

£7,525 is 16.35% of £46,000.

So you need to keep back 16.35% of your £1000 to pay taxes (but you need to remember that you also have to pay your expenses and fees out of the £1000 as well)


Of course, if your dividends exceed the higher rate tax threshold you will need to keep back more money.

HTH

IANAA (this advice is worth what you paid for it)

Nice example for the beginners amongst us (me!)

KL

[thugusher]

have you considered whether you are within IR35?

After spending a few hours trying to get a grip on the whole process I keep coming back to this issue - what's the point in setting up a ltd company and then getting investigated and paying a large fine and charges?

I currently work with a 'dodgy' IOM party and am keen to keep within the rules AND maximise retention of my earnings.

It seems a rather depressing situation, in that the revenue service will get you one way, or another

i'm within ir35 as im gonna be in 1 or 2 locations during my contract me thinks

[grumble]

hi i just about to start my 1st contract job and from wha i have been reading in variuos forums i am more interested in going the ltd route. i need advise on a reasonable about to store away for taxes i.e company, personal income tax e.t.c. is 25% ok. im not too keen on umbrella route. i'll be on £200/ day. advice will be appreciated.

have you considered whether you are within IR35?

After spending a few hours trying to get a grip on the whole process I keep coming back to this issue - what's the point in setting up a ltd company and then getting investigated and paying a large fine and charges?

I currently work with a 'dodgy' IOM party and am keen to keep within the rules AND maximise retention of my earnings.

It seems a rather depressing situation, in that the revenue service will get you one way, or another

[Archangel]

what about your personal income tax? excuse my naiveness

On a salary of £6000 you don;t pay any personal income tax (the threshold is actaully 6,035)

Any dividends received up to the higher rate threshold of 34,800 carry a notional tax credit (i.e. the company has already paid the tax) so no further income tax is due.

HTH

[thugusher]

you pay none if you keep your salary below the threshold and pay a dividend instead (which attracts a lower rate of tax than PAYE)

Have another read through the example, it'll start to make sense eventually.

does the dividend mean your shares in the company hence lower rate of tax?

[TheBigD]

what about your personal income tax? excuse my naiveness

In the example above, you're salary was less than 6k, therefore you don't have to pay any income tax or national insurance.

As the previous poster suggested, you ought to seek professional advice from an accountant.

[TCL]

you pay none if you keep your salary below the threshold and pay a dividend instead (which attracts a lower rate of tax than PAYE)

Have another read through the example, it'll start to make sense eventually.

[thugusher]

Take your company net weekly income (ex VAT) say £1000.

I work approx 46 weeks a year, so say £46,000 company income pa

Take off any legitimate expenses (I just charge mileage allowance) and accountancy fees say £4,000 pa and £1,000 pa respectively

Take off salary say £6,000 (no tax or NI due on this as below threshold)

Leaves £35,000 to pay corp tax on @ 21/22% so £7,525

Leaving £27,475 net dividend (no further tax to pay as this is below the £34,800 tax allowance)

So you would need to allow for £7,525 tax

£7,525 is 16.35% of £46,000.

So you need to keep back 16.35% of your £1000 to pay taxes (but you need to remember that you also have to pay your expenses and fees out of the £1000 as well)


Of course, if your dividends exceed the higher rate tax threshold you will need to keep back more money.

HTH

IANAA (this advice is worth what you paid for it)

what about your personal income tax? excuse my naiveness

[Archangel]

Take your company net weekly income (ex VAT) say £1000.

I work approx 46 weeks a year, so say £46,000 company income pa

Take off any legitimate expenses (I just charge mileage allowance) and accountancy fees say £4,000 pa and £1,000 pa respectively

Take off salary say £6,000 (no tax or NI due on this as below threshold)

Leaves £35,000 to pay corp tax on @ 21/22% so £7,525

Leaving £27,475 net dividend (no further tax to pay as this is below the £34,800 tax allowance)

So you would need to allow for £7,525 tax

£7,525 is 16.35% of £46,000.

So you need to keep back 16.35% of your £1000 to pay taxes (but you need to remember that you also have to pay your expenses and fees out of the £1000 as well)


Of course, if your dividends exceed the higher rate tax threshold you will need to keep back more money.

HTH

IANAA (this advice is worth what you paid for it)

[pmeswani]

hi i just about to start my 1st contract job and from wha i have been reading in variuos forums i am more interested in going the ltd route. i need advise on a reasonable about to store away for taxes i.e company, personal income tax e.t.c. is 25% ok. im not too keen on umbrella route. i'll be on £200/ day. advice will be appreciated.

Pay between £60 and £100 for an Accountant and ask them what you should do. HTH.

[blacjac]

hi i just about to start my 1st contract job and from wha i have been reading in variuos forums i am more interested in going the ltd route. i need advise on a reasonable about to store away for taxes i.e company, personal income tax e.t.c. is 25% ok. im not too keen on umbrella route. i'll be on £200/ day. advice will be appreciated.

Learn to spell and use capital letters.

HTH.