Ltd Co Contractor - maximising take-home - within reason!

RensterUK

Hi All,

I've asked my accountant to try and come up with some figures for me, but while I wait, I figured it was worth asking here!

I'm an IT contractor, with an Ltd Company, operating on the fixed-rate VAT scheme (ie, I charge 20%, and pay 15%). My wife is currently not salaried (full time work herself), but is a shareholder (1/3 her, 2/3 me). For family reasons, we're looking at the option of her quitting her job, with a view that we should be able to get enough out of the company revenue to meet our financial needs.

But how do I calculate it?

Things going in to company: Gross revenue (inc 20% VAT)

Things to go out: 15% VAT, PAYE (on my salary, and potentially hers - I believe she would "need" to become salaried if she gives up her current job), Corporation Tax, Dividends, chidcare vouchers (but that comes out of my gross salary).

Don't think I've missed anything there. The only other thing is, that we would like to arrange things such that after everything has gone out, there is enough left in the company account every year to cover 1-2 months between contracts - ie, 1-2 times salary, dividends, and PAYE.

Can someone please advise, after Revenue in, the order in which the deductions need to be considered, and how to best calculate approximate amounts?

Eg Gross in less 2 * gross salaries (ie, inc PAYE) = "a"
"a" - 15% VAT of "a" = "b"
"b" - 20% CT of "b" = "c"
and so on...

Does that make sense? Any guidance appreciated....

Thanks!

isplumm

RensterUK wrote: »

Hi All,

I've asked my accountant to try and come up with some figures for me, but while I wait, I figured it was worth asking here!

I'm an IT contractor, with an Ltd Company, operating on the fixed-rate VAT scheme (ie, I charge 20%, and pay 15%). My wife is currently not salaried (full time work herself), but is a shareholder (1/3 her, 2/3 me). For family reasons, we're looking at the option of her quitting her job, with a view that we should be able to get enough out of the company revenue to meet our financial needs.

But how do I calculate it?

Things going in to company: Gross revenue (inc 20% VAT)

Things to go out: 15% VAT, PAYE (on my salary, and potentially hers - I believe she would "need" to become salaried if she gives up her current job), Corporation Tax, Dividends, chidcare vouchers (but that comes out of my gross salary).

Don't think I've missed anything there. The only other thing is, that we would like to arrange things such that after everything has gone out, there is enough left in the company account every year to cover 1-2 months between contracts - ie, 1-2 times salary, dividends, and PAYE.

Can someone please advise, after Revenue in, the order in which the deductions need to be considered, and how to best calculate approximate amounts?

Eg Gross in less 2 * gross salaries (ie, inc PAYE) = "a"
"a" - 15% VAT of "a" = "b"
"b" - 20% CT of "b" = "c"
and so on...

Does that make sense? Any guidance appreciated....

Thanks!

Hi,

Being a shareholder is fine as you married to her - but making her salaried .... hmmm dodgy ground - you will have to pay her employees NI etc & my accountant has always steered me away from that!! Check out professional contractors (pcg) forum for more info BUT I would change the shareholding to say 50-50 or more in her favour - see what accountant says?

Mark

RensterUK

Mark - our accountant has advised make her salaried so as she makes her NI contributions - not sure if your wife has another job - which might explain different circumstances for you guys...

I assume you suggest 50:50 to take more out, without reducing what I take out?

isplumm

RensterUK wrote: »

Mark - our accountant has advised make her salaried so as she makes her NI contributions - not sure if your wife has another job - which might explain different circumstances for you guys...

I assume you suggest 50:50 to take more out, without reducing what I take out?

But you need to be able to demonstrate that your wife is a real employee - not just paying lip service to this. Check the pcg forums for more info.

In terms of your split - if you are paying 40% tax, then splitting company 50/50 will reduce your tax bill, as you will not be earning as much!! Obviously if you under the 40% tax bracket, then ignore.

Mark

System

BTW under flat rate you should only be paying 14.5% and not 15% for the IT trade sector

InsideInsurance

Speak to a dozen accountants and you will get a dozen answers but you will have the protection of their Professional Indemnity insurance if they've given you bad advice.

Forum members here do not have PI cover and so you should speak to your accountant instead.

Paying your wife so she makes the minimum NI contributions has advantages of keeping her state pension and other similar things at the full level. As has already been said, paying her a salary to simply get money out the company and pay less tax when she doesnt actually "earn" that money would be illegal.

My accountant was happy with a very small salary to my wife as she does do paperwork (basic bookkeeping/ invoicing etc) but not enough to get NI involved.

My accountant was equally concerned about a share split that doesnt in some way mirror the effort split in the company and so ours is 80/20. Obviously we would prefer 50/50 from a tax perspective but he said that this would in defensible


As to the calculations - its wrong, the 15% VAT is paid off of your total revenue not the revenue minus salaries.

After that you take off all the other allowable expenses like salaries, insurances, subsistence possibly, services possibly etc which gives you your profit. Your profit you then pay 20% corporation tax on

trailingspouse

It's OK to pay your wife, providing she actually does the work, and you actually pay her (ie move money from the business account into her personal account, as you would with any other employee). Quite simple really.

If it looks like she isn't actually doing any work, or that you aren't actually paying her, they will look for proof. This is easy enough to provide if you are actually doing it.

RensterUK

Thanks all... I'll see what my accountant comes back with (TBH, 120+VAT for standard membership at PCG seems a bit steep just for a bit of curiosity!) - but I think what InsideInsurance says confirms the sequence I suspected (sorry, what I quoted in the OP wasn't "word for word" my understanding - inc the 15% quote for FRVAT - that was 13.5 for first year trading, now up to 14.5... Was just quoting rough figures in a high-speed post at work ;-)

missile

You can pay your wife as company secretary and pay her whatever you think reasonable