Reply to: War chest

[d000hg]

I think I'd get very nervous the moment I had access to savings & available dividends of <£10k. Only 2 years ago that would seem a lot but contracting has distorted my view of money, £1000 is now hardly anything... I don't know which is the correct view.

Right now even with a few times that level I'm slightly nervous that I might have missed accounting for £10k in company tax. Although having the state where I'm constantly owed ~£10k in invoices does mean I always have more than I realise, which I think is a nice thing.

[DieScum]

Sounds like you have played that very well Batcatz.

No mortgage, savings and no drastic spending means you can enjoy the time off.

[Batcatz]

I've been living off my warchest since my last contract ended in Oct '08. I paid my mortgage off around that time too. I went to Oz for 2 months over Xmas, then decided not to look for a contract in '09. I spent more money doing fun things, then decided to get my brain working again and just completed the first year of a Creative Writing MA.

I have broken into my premium bonds now and have 4k left in the company which I will pay myself some as a dividend. I arranged to pay myself a salary from company from April '09, but accountant has messed that up and counted it as a dividend... but that's another story and another thread. I am expecting a tax rebate this year too.

I see my money as just for essentials now, but I can't help occasionally treating myself to something.

I also have pet chickens and bake cakes and quiche now.

Once I am down to 5k I will look for another contract.

[zedAccounts]

I take what you're saying but it seems a minor indicator to me, compared to MOO, ROS and control.

ZED.

[Babbage]

I don't see how dividend payment frequency has anything to do with HMRC, so long as it's drawn against profit. I look to keep enough money in the company to pay salaries for 6 months.

ZED.

How can they argue that you are inside IR35 if you are drawing profit that accrued from contract N-1 instead of contract N.

[al_cam]

Rubbish. Why shouldn't I take the profit my company makes as a dividend?

I possibly didn't explain it very well.

The company only pays dividends on profits after tax if it is in the interests of the company to do so. You have to differentiate yourself from the company. Paying it all out as dividends leaving none to cover expected ongoing running costs (salaries, accountants fees, telephone, website costs etc) is in my opinion an indicator of working inside IR35 - expecting guaranteed income to your company and not planning for business risk. I personally wouldn't fancy an investigation if I ran my company this way. ymmv but there are lots of contractors who do exactly this. I wish them all the best.

When in contract with a few months remaining, I leave at least 3 months running costs. When coming to the end of a contract I increase it to at least 6.

Al.

[zedAccounts]

I don't see how dividend payment frequency has anything to do with HMRC, so long as it's drawn against profit. I look to keep enough money in the company to pay salaries for 6 months.

ZED.

[Babbage]

Rubbish. Why shouldn't I take the profit my company makes as a dividend?

If you spread the dividends out over several contracts it is much harder for HMRC to argue that any given payout is from *THIS* contract.

Saying that 7 months on the bench is starting to put a few dings and dents in the warchest. Enjoying the time at home though.
Funy thing happened just before the weekend, as it is getting desperate and I want to be building the warchest up again, I applied for a job that is below what I normally apply for as I have not had any feedback or interviews yet.
Anyway I get past the agency and Human Remains then the line manager looks at my CV and says he wants to telephone interview me for a role that pays almost 25% more...
Yippee, so i am cautiously doing my homework on the company and hoping for a fruitful telephone interview.

[nomadd]

Oh no I'm down to my last five grand. If I don't get work soon I'll have to sell the kids. Oh wait, I'll just take some money out of my massive personal savings.

Nope, I'd sell the kids.

[DieScum]

Ha ha. Not quite so bad then is it.

Oh no I'm down to my last five grand. If I don't get work soon I'll have to sell the kids. Oh wait, I'll just take some money out of my massive personal savings.

[nomadd]

It's interesting to hear about people running out of a war chest?

How much do people generally build up?

If you've been in the game a while surely it's not too difficult to build up a large pot. Once you get to say 100k isn't that pretty much immunity to downturns.

Assuming you can cut live on say 25k net a year that's four years.

Agreed. But I always consider my "personal" warchest (which after 21 years contracting is not inconsiderable) as being distinct from my "company" warchest. When I'm out of contract, I always like to live off the company warchest. Living off "my own money" would feel like cheating.

[DiscoStu]

Surely there are 2 war chests?
A business one - you should retain enough money in the business to keep it going and to pay a salary. Those who pay the lot out as dividends risk the wrath of the HMRC for not actually running a business.

Then there is your personal war chest - my company salary and my wife's salary doesn't cover the bills so each month I am on the bench, we have to dip into the personal war chest which is offset against my mortgage.

Anyway, I am nearly 9 months on the bench, my business war chest will last until September and the personal one maybe 9 months after that. I have already taken the decision to reduce my rate expectations and widen my working location and if I have nothing by end June I will consider the dark side...

I'm naturally cautious and trying hard to pay off the mortgage so I have an 8 year old car and don't spend frivolously. While on the bench, I have been gradually reducing my expenditure, cutting out the unnecessarily luxurious things. As I have other non-IT skills, it will never come down to beans on toast for dinner for me. Worst would be to shelve the business while I earned considerably less than IT contracting doing other things.

Al.

Rubbish. Why shouldn't I take the profit my company makes as a dividend?

[DieScum]

It's interesting to hear about people running out of a war chest?

How much do people generally build up?

If you've been in the game a while surely it's not too difficult to build up a large pot. Once you get to say 100k isn't that pretty much immunity to downturns.

Assuming you can cut live on say 25k net a year that's four years.

[Bright Spark]

i've only had to use the warchest twice over 16yrs , once back in 2001 after 9/11 was for about
8months and during the recent credit crunch in 2008 for about 5months. just hoping the recovery
keeps on going and my invoice machine doesn't break down!!

[nomadd]

Anyone else here living off a war chest?

How long will you live off the war chest before you make drastic changes in your lifestyle? For example, will you rent out your property and lodge somewhere? Do you refrain from taking holidays whilst on warchest?

Trouble is, it's so much joy living on a war chest doing no work. Spending is easy... but there is increasing fear the money will run out!

In 21 years contracting, I've actually completely exhausted the warchest on two occasions. On a third occasion, I had 6k left in it...with a 6k Corp. Tax bill due to pay.

I promised myself after the last time I'd spend several years building up a megachest. Which is exactly what I'm doing now. Who knows what post-election blues await us...