Contracing, Mortgage One account & tax questions

Hillfly

Hi,

I am an IT contractor and am currently using an umbrella comoany who employ me, pay my tax and then pay me.
I have been wondering if it's worth moving to my own company to do the tax part as i may be able to 'increase' my income, although I know IR35 makes this somewhat more tricky.

What i want to know is if i have a 'One account' for my personal mortgage, is there anyway i can put the money i receive from my company invoices into the One account until the end of the tax year when i would then use the money to pay the tax.

Would i be liable to pay tax on the interest i have saved paying if i can do this?

I was thinknig that maybe i could loan the money to myself at 0%?

WHA

The company would be lending money to you. Besides the fact that it is illegal for the company to do that, if the balance lent to you exceeded £5,000 at any time in the year, you'd be taxed as a benefit in kind on the loan interest (at HMRC rates) that you havn't paid, and the company would be liable to pay employers NIC on the same amount, so basically, you'd be paying tax and NIC on the interest that you are saving. Best thing is to get a decent interest-paying bank account for the company, so the company is earning interest on the excess money.

Hillfly

Is there no legal tax efficient way of parking the money into my personal account then?

silvercar

Nat west do an offset where your business account receives no interest but offsets your mortgage. I think you need to be sole trader rather than a company though.

Hillfly

Can someone briefly explain the difference between being a sole trader and a company? Treat me gently please as this is quite new to me!

silvercar

sole traders are trading as themselves, so you pay Joe Bloggs your decorator by writing a cheque to Joe Bloggs.

trading as a company means you and the company are separate entities, even if you own 100% of the company. So if Joe Bloggs does your decorating through his company "JB decorating services" you would write a cheque to "JB decorating services".

from a tax point of view as a sole trader you account for your business expenses and income and pay tax accordingly but the money is all yours.

as a company, the company has expenses, the company charges out for the work you do and receives the payment. you then draw a salary from the company, you also draw dividends (similar but can be tax efficient). this leaves money in the company that can remain there or be taken out as required. it is often more tax efficient to operate out of a company.

a limited company is a company with limited liability, so if it goes bust creditors can't come chasing you.

IR35 was designed to stop people who were really employees of one firm hiding behind a company to reduce their tax bill. this is probably why you need an umbrella company rather than your own company.

hope that makes sense.