Job offer - tax implications - complete confusion.

Sooz00

Hi, hoping for some advice here as we are really out of our depth. I've been trying to understand where we stand using the HMRC website, but it makes very little sense.

After being made redundant late last year, my OH has been doing contract work via an umbrella company whilst trying to decide whether he should set up formally and be self employed.

The company he is working for have now offered him a permanent job and whilst he/we would feel more secure if he took it, we really aren't sure whether it will be financially viable to do so.

Currently he is earning £24 p/h based on 37.5 hour week.
He usually does a minimum of 5 additional hours per week.
His travelcard costs £132.00 each week which he gets tax relief on.
He pays the umbrella firm £8.99 each week which he gets tax relief on.

If he took the job offered...
Salary would be £44,000 per year (no paid overtime).
Travel allowance would be £4,300 per year.
He would also get a fuel card.

We have both been trying to work out whether we could survive financially if he took the job but we are completely out of our depth on the tax side of things. We've both been trying to find out where things would stand and we end up with different answers so clearly we are doing something wrong...:undecided

If anyone could help out or steer us in the right direction, it would be a huge help. He told the company he'd need an offer/contract in writing so he could make an informed decision. They have given him that today and want it signed & back with them tomorrow to meet their payroll deadline of 15th.

xylophone

http://www.hmrc.gov.uk/incometax/codes-company-benefits.htm
Does this help?

Sooz00

Thank you Xylophone. Maybe it's me, but that's amongst some of the information I've already read on the HMRC site and I'm still struggling.

I'm just not sure what calculations I'm supposed to be making to get to a figure which tells us what his monthly pay will end up being and how much tax he'll end up paying.

Maybe I'm wrong, but I'm thinking that he has a personal allowance of just over £8105 which is tax free. Then he'll pay 20% on the next £34,370, then 40% on anything else. However, how is the personal allowance affected by the benefits. Some things I read say the value of the benefit comes off the personal allowance, other things say the benefit value is taxed at 40%. Really am very confused. Also, I can only find information on fuel cards relating to company cars, which he wont have. I'm usually quite good with things like this, and it is possible that I have baby brain, but I really feel we are out of our depth with all this.

CLAPTON

what does a travel allowance mean?

is the fuel card available for personal use?

Sooz00

CLAPTON wrote: »

what does a travel allowance mean?

is the fuel card available for personal use?

I'm assuming it's similar to a car allowance...? Under Remuneration on the contract it says 'Travel allowance: £4,300 per annum + fuel card'. Later on it says: 'A fuel card will be provided for business and reasonable personal mileage'

Not sure what would be deemed as 'reasonable'... they don't say. Also, as he will be London based, 'business mileage' will largely be in London and he will have to use hi travelcard which we fund. So, is this a pointless benefit?

xylophone

Should he just ring the company and ask whether the "travel allowance" and fuel card count as salary/benefits in kind?
http://www.direct.gov.uk/en/moneytaxandbenefits/taxes/workingandpayingtax/dg_10013512

Little_Mo_70

Sooz00 wrote: »

Hi, hoping for some advice here as we are really out of our depth. I've been trying to understand where we stand using the HMRC website, but it makes very little sense.

After being made redundant late last year, my OH has been doing contract work via an umbrella company whilst trying to decide whether he should set up formally and be self employed.

The company he is working for have now offered him a permanent job and whilst he/we would feel more secure if he took it, we really aren't sure whether it will be financially viable to do so.

Currently he is earning £24 p/h based on 37.5 hour week.
He usually does a minimum of 5 additional hours per week.
His travelcard costs £132.00 each week which he gets tax relief on.
He pays the umbrella firm £8.99 each week which he gets tax relief on.

If he took the job offered...
Salary would be £44,000 per year (no paid overtime).
Travel allowance would be £4,300 per year.
He would also get a fuel card.

We have both been trying to work out whether we could survive financially if he took the job but we are completely out of our depth on the tax side of things. We've both been trying to find out where things would stand and we end up with different answers so clearly we are doing something wrong...:undecided

If anyone could help out or steer us in the right direction, it would be a huge help. He told the company he'd need an offer/contract in writing so he could make an informed decision. They have given him that today and want it signed & back with them tomorrow to meet their payroll deadline of 15th.

Does this help?
http://www.hmrc.gov.uk/incometax/basics.htm#6

harvey115

To me it looks like the Permanent Job turns out to be better, here is why:

Self Employed:
Weekly salary = 42.5 (hours) X 24 (per hour) = £1,020
Yearly Salary = 52 X Weekly salary = £53,040
Expenses = 132 X 52 + 8.99 X 12 = £6,972

Gross Salary = £46,068

Permanent Employment = £44,000 per annum

Although the above shows that Self employed is better by ~£2,000. You need to factor in the added costs and NI contributions etc. Also a permanent job would have some more added benefits i.e. slightly better security, promotions, bonuses (if any), if thinking if loans/mortgages its easier with permanent salary etc.

Given only a slight difference in the amount I would opt for permanent mainly because of the hassle you have to go through with self employment i.e. tax returns, invoicing the client, payment delays etc.

harvey115

Actually a couple of further things I missed, makes the permanent job the right choice.

Bank Holidays - factor in 2 weeks for this thus minus £2,040 from the £46,068 = £44,028.

So basically without any additional charges and hassle you are getting the same number and believe me there is a lot of work you need to do when self employed as compared to a permanent job.

Savvy_Sue

to add to what harvey says, was he getting paid leave while contracting? He will now, at least 20 days PLUS the bank holidays. Plus he will get at least Statutory Sick Pay, even if the company doesn't have its own sick pay scheme.

And before long, his employer will have to offer him a pension plan (if they don't already).

sujman

Seems a little odd they supply a fuel card but no company car? But looking at the fuel card alone, the tax cost of the fuel card will be around £20,200 x 20% x 40% = £1616. Current travel card costs £132 per week or £6864! I have a company car with fuel card and the toal I lose thru tax is less than £4000. Excellent value in my case and still cheaper than you £6864 travel card costs.