Contracting (working outside of IR35)

[mark seeker]

Quick question - what % of tax can you roughly expect to pay by operating as a LTD company? I thought it was around 25%? I know this is slightly a 'how long is a piece of string question' - thanks in advance

[Eric Mc]

Corporation Tax rate is currently 21% on taxable profits.

If you draw dividends, you pay NO tax on dividends below the Higher Rate Income Tax threshold. That jumps to 32.5% if your income goes over that threshold.

With the advent of the 50% income tax rate on incomes over £150,000, this will increase to 42.5%f or very high earners.

The Higher rate threshold is currently £43,875.

So, if you had a profit for the year of £50,000 and drew a dividend of £40,000, you would pay Corporation Tax of £10,500 and no Income Tax at all.

There is no National Insurance charged on dividend income.

[allgonepetetong]

Depends on hourly / daily rate.

For £450 per day expect to pay around 25% of your daily rate as tax if operating through a ltd company.

This is assuming you will be entering the flat rate VAT scheme and charging VAT on your rate.

Edited by allgonepetetong on Tuesday 15th December 12:19

[mark seeker]

excellent thanks - I'm struggling to get anyone to offer more less than 32% tax (very few expenses)

[ewenm]

mark seeker said:

excellent thanks - I'm struggling to get anyone to offer more less than 32% tax (very few expenses)

Different figures if you're talking about using umbrella companies. The figures above are about right for running your own Ltd company.

[mark seeker]

That is what I was looking at - Umbrella's seem to offer around 39% tax! Includes taking a salary

Just looking at random numbers -

Day Rate: 350
Working Days: 225

Annual Gross: £78,750

Annual Net: £50,112(breakdown below)

Annual Salary £12,000 - Net Salary = £9972

Corp Tax £78750 * 0.2 = £15,750
Lower Tax Dividend £37,400 - £12,000 = £25,400 * 10% = £22,860
Higher Tax £78,750 - £15,750 - £37,400 = £25,600 * 32.5% tax = 17,280

Net Monthly : £4176

[Eric Mc]

They are including their fees as part of their "tax" calculation.

If you operate through your own limited company, you will need to factor in accountancy fees as well (unless you're Dilbert ).

Why do you think IR35 is not an issue?

[RizzoTheRat]

I found this quite usefull
http://www.contractorcalculator.co.uk/Calculators....

[Eric Mc]

As long as it is bang up to date. The pace of change in this area is frightening and what was calculated two or three months ago may not be valid in two or three months time.

Also, there are some serious IR35 issues arising from the Dragonfly legal case.

Finally, HMRC are looking top redefine what "Self Employed" really means.

Watch this space.

[allgonepetetong]

mark seeker said:

excellent thanks - I'm struggling to get anyone to offer more less than 32% tax (very few expenses)

You need to put through expences as this has a large effect.

Travel (only for 1st two years of any single contrat to escape IR35)
Mobile phone (have it registered in your company name)
Accountancy fees

[Eric Mc]

allgonepetetong said:

mark seeker said:

excellent thanks - I'm struggling to get anyone to offer more less than 32% tax (very few expenses)

You need to put through expences as this has a large effect.

Travel (only for 1st two years of any single contrat to escape IR35)
Mobile phone (have it registered in your company name)
Accountancy fees

If only it was all so simple