Re: Going from PAYE to contract.Help please! : Thu Oct 18, 2012 8:31 pm  

Dally wrote:

If you pay yourself the £12,000 dividend in the same fiscal year as you take the £34,999 then you will NOT remain a basic rate taxpayer. The dividend will create a higher rate personal tax liability of £3,000 payable via your self-assessment Return.

If you time things right you can have the dividend tax free and then adjust salary for the new year to take into account the income derived from it and get maximum value from your basic rate allowance.

Re: Going from PAYE to contract.Help please! : Thu Oct 18, 2012 9:02 pm  

Derwent wrote:

If you time things right you can have the dividend tax free and then adjust salary for the new year to take into account the income derived from it and get maximum value from your basic rate allowance.

Yes, but if you consistently earn £35,000+ that does not work if you wish to draw all the money out.

[DaveO]

Re: Going from PAYE to contract.Help please! : Thu Oct 18, 2012 11:44 pm  

Derwent wrote:

As an example, a person on £50k on PAYE would have net earnings of around £35k after tax and NI. A limited company on £50k would give you net income of around £38.5k.

Well it might not be on the Vodafone scale of tax avoidance but this is certainly no different from a moral standpoint. More legalised tax avoidance.

Re: Going from PAYE to contract.Help please! : Sat Oct 20, 2012 11:46 am  

Dally wrote:

Yes, but if you consistently earn £35,000+ that does not work if you wish to draw all the money out.

This is the quandary i have to be honest. Would this mean I would be better paying myself 35k a year and then leaving the rest of my earnings in the business account or would i then be hammered for other taxes etc.

Sorry if these are obvious questions everyone but its the first time ive had to work like this.

Thanks for all you posts as well everyone!

Re: Going from PAYE to contract.Help please! : Sun Oct 21, 2012 8:08 am  

Derwent wrote:

In a limited company you would pay yourself a salary of say £34,999 to make sure you are a basic rate tax payer. Then, assuming no other costs, your company would have a pre-tax profit of £15,001 (i.e. £50,000 minus £34,999). The company would pay 20% corporation tax at that level of profit. So the £15k profit becomes £12k after tax.

Wouldn't a limited company also have to pay VAT on the services it provides?

DaveO wrote:

Well it might not be on the Vodafone scale of tax avoidance but this is certainly no different from a moral standpoint. More legalised tax avoidance.

Yup. Just like paying into a pension by salary sacrifice or the various Income Tax allowances and reliefs. There are loads of legalised methods of tax avoidance. None of which are any different from a moral standpoint.

Re: Going from PAYE to contract.Help please! : Sun Oct 21, 2012 10:21 am  

SBR wrote:

Wouldn't a limited company also have to pay VAT on the services it provides?

Not if it's turnover is less than £77,000 per year. Companies do not have to be VAT registered below that figure.

Re: Going from PAYE to contract.Help please! : Sun Oct 21, 2012 10:33 am  

Most one man band limited companies like this register for vat under the governments flat rate scheme. You can then charge your ustomers 20 percent but only have to pay HMRC 14.5 percent or less.

Re: Going from PAYE to contract.Help please! : Sun Oct 21, 2012 10:46 am  

Again, the only word of warning I'll give to the OP is that you are now walking into the deep end of the swimming pool, you have to be VERY disciplined to run yourself as a Limited Company and when you throw in VAT as well then you are talking about a complete change in your perceptions of how you earn money and how you pay taxes.

If you've arrived at this point from being a PAYE employee for years to suddenly being self employed then stop and think about how you are going to organise the fact that the money that gets paid into your bank account every month is NOT all your money, some of it belongs to HMRC and they get rather shirty when you don't hand it over to them.

Been there, bought the t-shirt, had the t-shirt repossessed

Re: Going from PAYE to contract.Help please! : Sun Oct 21, 2012 11:00 am  

Karlos wrote:

This is the quandary i have to be honest. Would this mean I would be better paying myself 35k a year and then leaving the rest of my earnings in the business account or would i then be hammered for other taxes etc.

Sorry if these are obvious questions everyone but its the first time ive had to work like this.

Thanks for all you posts as well everyone!

Its a difficult question to answer because everyone's circumstances are different. For example, if you have a wife or partner that doesn't currently work then that is an obvious easy route to get money out of the business tax free. Your best bet is to go and see a good local accountant who will be able to advise you based on your own personal circumstances.

Re: Going from PAYE to contract.Help please! : Mon Oct 22, 2012 10:15 am  

Karlos,

The sensible thing is to get advice from an accountant. All will have dealt with this scenario before, all will be able be to advise based on the IR35 rules. It may cost you a few quid up front to get their advice, but they will probably re-assure you and remove a lot of the worry and confusion that you have.

You do not need to go the Limited Company route. As stated by others this does have advantages - you can pay a small salary with the usual PAYE & NI deductions, and then pay yourself a dividend. Dividends attract a flat 20% tax, and no National Insurance. And this is irrespective of whatever you total annual earnings are from all sources.

The main thing to be mindful off is if you go Limited, Self Employed, Unbrella, you will have to employ a bit of disciplined administration. This will not be a big burden if managed continually, and is not rocket science.