Contractor TAX!!!

mobad

Employer NI paid to HMRC
Admin fee to Umbrella Company
Tax deducted
Employee NI

The above is what is taken from the funds sent to my umbrella company.

Many contractors I speak to use limited companies to reduce tax and get out from paying employee NI.

Just wanted to know what other contractors are doing and if you are also having your own limited company, from whom and how did you set it up and how would I go about it?

Thanks

chrismac1

The first thing to establish is whether you are genuinely or "falsely" self-employed. IR35 may be under review be the new Government, but has not gone away. Three key tests:

1. Are you in control over your working hours and how the work is done, or is your client?
2. Have you got the contractual right to send a substitute in the case of illness etc. and would your client permit you to exercise this right in such a case - or would he/she insist that the work must be personally done by you?
3. Is there an ongoing undestanding for work to be offered to you and for you to accept it? I ask people - as a test - "if another contract came along at twice the rate for 3 weeks, are you free to take that one on - in the same way as a builder or plumber would - and return to your current contract afterwards?

These are the three key tests, but there are others. HMRC have a proud history of losing IR35 cases, so do not be misled by their website into thinking you are trapped by it. Hopefully all of this is old hat and your contract has been properly reviewed by a good commmercial lawyer.

Once you are free of IR35, setting up a limited company makes a lot of sense providing you can reliably file all your invoices and keep all your expense chits, fuel bills etc. It will cost you an extra £300 to £400 a year in Companies House and accountancy fees. But typically you'll pay yourself a £475 a month salary to keep up your NI stamp, and take the rest of your profits as dividends, thus saving a shedload of NI. The breakeven is around 13,000 in taxable profits, by 40,000 your saving is £2k per year compared to operating as a sole trader / employee.

grey_lady

Check the it contractor uk forum, and talk to a couple of accountants that work with it contractors.

chrismac1

The Professional Contractors group is another good port of call.

property.advert

You should most probably register for VAT and take advantage of their flat rate scheme. On each 100k, you would (from January) receive 20k in VAT but the maximum you would pay out is 14k and less if your industry attracts a lower percentage. You lose a bit but you gain quite a lot.

Catches_win_Matches

Contractors tend to prefer Ltd Cos because of the control and potential higher take home earnings.

Any accountant will be able to do this but you may want to pick out one that has knowledge (like us) of the contractor market.

Make sure you are IR35 compliant, a good contractor accountant, (like us, sorry had to get in the plug) should be able to asses this and let you know your status.

Some contractors even armed with knowledge still sail close to the wind in an effort to squeeze out that last bit of tax free earnings.

Don’t be overly greedy and chances are you’ll still increase your take home pay.

leveller2911

Catches_win_Matches

Its not that bad..