Starting contract work

[illmonkey]

Looking into this as a change from working for the man. Wouldn't be massive sums of money, but well into the 40% tax bracket.

I know I'd need to setup as a limited business, but what are the best methods to get the most money out? £10k tax free, spread over the year then take the rest as dividance as and when? My other half isn't a 40% tax payer, can I pay her some of it?

What about claiming for mileage for commuting to sites? Or even leasing a car?

You're going to tell me to get an acountant. Thanks. Just wanted some quick help to see if it's going to be a lot of effort and worth doing.

[Dicky Knee]

As you said, you need an accountant to run through it.

But, I am just going through the same thing. Broadly, you take a salary of around £7000 (NI threshold) and the rest as dividends (no personal tax up to around £32 000 I think-there is a tax credit from the corp tax)but corporate tax is around 20%.

You can pay your wife something but she should demonstrably do something for that money and she can be a shareholder and therefore receive dividends. Again you need advice as she should only be a modest shareholder if all income is from your work.

You need to make sure you don't run into problems with IR35 (you should have multiple clients and not just work for one client).

Mileage is claimable at 45p per mile up to 10 000 miles and 25p there after if you are going to see clients (but not travelling to and from your office).

Can claim some home expenses if your office is located in your home.

Can claim stuff like computer, printer, stationary and mobile phone.

Can also claim entertainment expenses from the company but depends on whether they are overseas or domestic clients as to the tax treatment.

Not sure there is any advantage to leasing a car, you will have to ask the accountant (who will charge you something to set up the company-maybe £100 but you can do this yourself for about £20 and his annual fees-maybe £1 000 which is also deductible).

You may well end up with a chunk of cash in the company which you can also pay as a dividend but the tax rate will be higher. eventually you can wind the company up and take the balance with an entrepreneurs tax of 10% I think.

That's about it from me but I'm sure there will be others who know more than me.

[illmonkey]

Thanks. What if it was a single client site I work on, but not the same as who the contract is with?

[0000]

illmonkey said:

I know I'd need to setup as a limited business, but what are the best methods to get the most money out? £10k tax free, spread over the year then take the rest as dividance as and when?

I tend to take about £10k, paying a little NI, as a salary with one dividend up to the 40% tax bracket, in some years a further one up to the £100k mark.

illmonkey said:

My other half isn't a 40% tax payer, can I pay her some of it?

I think in theory that's fine if you're paying her to do work for the business. I've avoided it but I know people who do it.

illmonkey said:

What about claiming for mileage for commuting to sites? Or even leasing a car?

Think my accountant reckoned if it was something of a permanent place of work (I think he said 3 days a week or more over a 2 year period) then I couldn't claim the mileage (regardless of who the contract is signed with), otherwise I claim everything I do for the business.

illmonkey said:

You're going to tell me to get an acountant. Thanks.

Get an... you're welcome.

illmonkey said:

Just wanted some quick help to see if it's going to be a lot of effort and worth doing.

More than likely, it'll be well worth doing if only for the flexibility in how you pay yourself. Depending on your rate the flat rate vat scheme is worth looking at. None of it's massively complicated, but there's a lot to be aware of. I did try avoiding getting an accountant until I needed one but it didn't take long to get past a VAT return period and then it was all a bit of a rush. I now have a very good but (from what I can work out) very expensive accountant so shop around early.

[Dicky Knee]

illmonkey said:

Thanks. What if it was a single client site I work on, but not the same as who the contract is with?

I don't know.

You also need to think about VAT registration. Not strictly necessary up to a turnover of £81 000 but again your need to talk to an accountant about your persona circumstances.

If you Google accountant in your local area you will probably find one that will give you a 'free' initial meeting which would be worthwhile.