Contractors: IR35 & general discussion

[Gad-Westy]

Blown2CV said:

OK... question for the contractors on here

if a hypothetical outside IR35 contractor was taking £1000pd revenue, and wanted to maximise their legal ability to reduce their tax burden, what sort of salary might they end up with? I had a look on contractor calculator, but i am not quite sure for these online tools whether they are legally very cautious or if they are openly suggesting you take it as far as you can.

i guess assuming a working year of 224 days

I think the contract calculators are normally quite cautious. There are usually quite a few things can be offset depending on your arrangements. Travel costs, phone, internet etc or portions thereof. Then there is pension contributions etc. Really hard to answer but I'm guess a typical figure might be anywhere from 60-70% take home out of that.

[Blown2CV]

Gad-Westy said:

Blown2CV said:

OK... question for the contractors on here

if a hypothetical outside IR35 contractor was taking £1000pd revenue, and wanted to maximise their legal ability to reduce their tax burden, what sort of salary might they end up with? I had a look on contractor calculator, but i am not quite sure for these online tools whether they are legally very cautious or if they are openly suggesting you take it as far as you can.

i guess assuming a working year of 224 days

I think the contract calculators are normally quite cautious. There are usually quite a few things can be offset depending on your arrangements. Travel costs, phone, internet etc or portions thereof. Then there is pension contributions etc. Really hard to answer but I'm guess a typical figure might be anywhere from 60-70% take home out of that.

cheers.. that's markedly different than the calculator! Online suggests £9500 pcm or so but you're saying maybe more like £13500pcm is achievable? That's a different ball park really!

[Gad-Westy]

Blown2CV said:

Gad-Westy said:

Blown2CV said:

OK... question for the contractors on here

if a hypothetical outside IR35 contractor was taking £1000pd revenue, and wanted to maximise their legal ability to reduce their tax burden, what sort of salary might they end up with? I had a look on contractor calculator, but i am not quite sure for these online tools whether they are legally very cautious or if they are openly suggesting you take it as far as you can.

i guess assuming a working year of 224 days

I think the contract calculators are normally quite cautious. There are usually quite a few things can be offset depending on your arrangements. Travel costs, phone, internet etc or portions thereof. Then there is pension contributions etc. Really hard to answer but I'm guess a typical figure might be anywhere from 60-70% take home out of that.

cheers.. that's markedly different than the calculator! Online suggests £9500 pcm or so but you're saying maybe more like £13500pcm is achievable? That's a different ball park really!

Looking at the calculator they show tax burden of about 47% on the profit (I think they just take out an £11k salary for deductions). That seems high to me but i guess corp tax rate and dividend tax rates will both be at higher ends. Again depends how the company is structured. Many poeple will have a spouse receiving a wage or dividends for example.

I also probably shouldn't have used the term take home because what I probably mean is that there are day to days costs to claim for that might keep some money in your pocket.

Worth also mentioning that at that level of income you'd be VAT registered and depending on the sector the flat rate VAT scheme can mean up to an additional 8% income.

I wonder if my estimate is high but I would maintain the online calculator sounds like a bit of a worst case.

Edited by Gad-Westy on Tuesday 14th May 12:07

[Olivera]

On £1000 p/d long term I'd be on a small salary, issuing dividends up to 100k, then retain the rest in the LTD company. After 3-4 years wind up the LTD, use Business Asset Disposal Relief and retire.

[Pit Pony]

Olivera said:

On £1000 p/d long term I'd be on a small salary, issuing dividends up to 100k, then retain the rest in the LTD company. After 3-4 years wind up the LTD, use Business Asset Disposal Relief and retire.

Would you put anything into pension contributions?

[Lefty]

As much as possible!

Remember your company can invest its spare money too. No point in it sitting, deflating, in a business bank account.

[eps]

I've just agreed a permanent deal.. For the first time in 27 years!!

The numbers and opportunity should be quite good... a decent salary and a few bonus options. Of course, as with all these things need to see the actual contract and the written detail, but it should all match what's been verbally discussed and agreed.

[Blown2CV]

i had a perm verbal offer yesterday also! I thought they had gone away as I said they were nowhere near on salary and i wanted XYZ. They disappeared for 6 weeks with no word and then came back to say yep OK. Couldn't quite believe it. Is a bit of a departure in terms of role type but quite exciting i think.

[theboss]

Blown2CV said:

OK... question for the contractors on here

if a hypothetical outside IR35 contractor was taking £1000pd revenue, and wanted to maximise their legal ability to reduce their tax burden, what sort of salary might they end up with? I had a look on contractor calculator, but i am not quite sure for these online tools whether they are legally very cautious or if they are openly suggesting you take it as far as you can.

i guess assuming a working year of 224 days

The optimal drawings for tax efficiency are 'as little as possible' so it really depends how little they can get away with.

If income splitting with a spouse, I'd try and constrain drawings to 2 x £12.5k salaries and divs up to £50k each personally. The marginal goes very steep after that.

If there's only one director/shareholder then you'd have to choose whether you cross that threshold or not, depending on what income you need to live with.

Pathetic really that these thresholds are where they are. Personally, I'd constrain my earnings as much as possible rather than pay 50%+ effective marginals on any sum. In a US style tax system (complete with household / matrimonial tax calculation) I'd just distribute the full profits of the business and pay the 30%-odd more than happily.

Edited by theboss on Wednesday 15th May 11:53

[Countdown]

theboss said:

In a US style tax system (complete with household / matrimonial tax calculation) I'd just distribute the full profits of the business and pay the 30%-odd more than happily.

On a £100k PAYE salary the total Employee tax/NI deduction is 27%, before any pension contributions. On £150k it's 31%.

[theboss]

Countdown said:

theboss said:

In a US style tax system (complete with household / matrimonial tax calculation) I'd just distribute the full profits of the business and pay the 30%-odd more than happily.

On a £100k PAYE salary the total Employee tax/NI deduction is 27%, before any pension contributions. On £150k it's 31%.

Not sure where you got those from but Tax/NI on £100k is £31,442 and on £150k is £58,713 or 39%

For a business owner distributing profits optimally add Employers NI or substitute for combined Corp and Div taxes and you can see that a business owner extracting >£50k of profits is facing a marginal of around or just over 50%

It only gets worse as the numbers increase.

It's therefore optimal to find a sweet spot. I don't care if overall tax on £300k is 'only' 40%, if it becomes profoundly "more progressive" at some arbitrary point then people will try to sit at that sweet spot if they can afford to constrain their net income to do so.

This doesn't take account of any other taper effects such as Child benefit higher tax charge, childcare and so on.

[Countdown]

My apologies - i think i was including my pension contributions when I ran those calcs.

The point i was trying to make was that if you're happy paying 30-something percent tax rates in the US then they're not massively different to the direct tax rates we pay in the UK. of course there are lots of things you pay in the US that you don't in the UK (and vice versa) and there are also differences in salaries (as my son keeps reminding me). In short, it's swings and roundabouts.

[tim jb]

Wondering if there'll be any reforms under Labour.

[n3il123]

Yes, just not for the better would be my suggestion.

[Guvernator]

Yeah no way a Labour government will change anything in IR35 for the better, they hate us more than the Tories.

I finally gave up and took my first inside IR35 contract 6 months ago and tbh it's been pretty good. OK the rate is very decent so that goes a long way to covering the massive tax hit I am now taking but it's just nice to not have to worry about accountants or how much money I can take out of the business. Whatever lands in my personal account every week is mine to do with as I please.

Just wish Umbrella companies and Pension providers were better geared up for this crap though. I tried to sort out salary sacrifice a few months ago and gave up in the end as I was losing the will to live. I'm trying to build-up the willpower to have another go.

[CloudStuff]

Guvernator said:

Yeah no way a Labour government will change anything in IR35 for the better,they hate us more than the Tories.

I finally gave up and took my first inside IR35 contract 6 months ago and tbh it's been pretty good. OK the rate is very decent so that goes a long way to covering the massive tax hit I am now taking but it's just nice to not have to worry about accountants or how much money I can take out of the business. Whatever lands in my personal account every week is mine to do with as I please.

Just wish Umbrella companies and Pension providers were better geared up for this crap though. I tried to sort out salary sacrifice a few months ago and gave up in the end as I was losing the will to live. I'm trying to build-up the willpower to have another go.

Lol, as if that's possible!

Edited by CloudStuff on Friday 24th May 20:49

[Gazzab]

I hear that things are getting better and clients are increasingly likely to offer inside contracts. My personal experience is that hmrc continue to try and choke clients and scare the cr@p out of them

[u6dw4]

Guvernator said:

Yeah no way a Labour government will change anything in IR35 for the better, they hate us more than the Tories.

I finally gave up and took my first inside IR35 contract 6 months ago and tbh it's been pretty good. OK the rate is very decent so that goes a long way to covering the massive tax hit I am now taking but it's just nice to not have to worry about accountants or how much money I can take out of the business. Whatever lands in my personal account every week is mine to do with as I please.

Just wish Umbrella companies and Pension providers were better geared up for this crap though. I tried to sort out salary sacrifice a few months ago and gave up in the end as I was losing the will to live. I'm trying to build-up the willpower to have another go.

For my industry, it's the costs staying away from from home. Lots of employer's complain they can't recruit the right skills, but umbrella is the worst of both worlds. My industry is bubbles (cities). if you live in the area is ok, but it limits the people available.

[Guvernator]

You can still claim travel costs on an inside contract as long as you negotiate that into your contract.

I live near London so travel is never an issue for me. More than enough work there for me not to travel anywhere else. In fact I regularly turn down contracts elsewhere.

[blueg33]

I employ 15 agency staff to do non skilled work. The agency mark up is about 20%

I am also a contractor (interim) via a consultancy, the consultancy markup is 10%