Pointers for my research on contracting PAYE vs umbrella vs "Ltd"

getmore4less

motorguy wrote: »

Earnings relative to tax paid is what the tax man will look at, not earnings.

If you're only paying 10% then thats going to attract attention.

.

the earning received as dividends have been taxed and if you take enough they get further tax so there is little difference in the total tax for PAYE/dividend.


The important thing is to ct like a contractor not an employee.

Come and go when you want
work from home sometimes
take time off when you want
work for multiple clinets

but not enough to upset the clients

the client would be mad to put any employee type terms in writin they have a lot more to loose than you if you become an employee for tax reasons.

tacpot12

... but what happens to all the money that you don't withdraw??

It basically sits in the company. Ideally, you find something legitimate to spend it on in the year it is earned; pensions are one option, training is another. You could invest the money in the company's name, but the company soon becomes a non-trading investment company, and you'll pay a higher rate of corporation tax on the profit.

As the company pays corporation tax on profit each year, once you have made a profit, you might as well take the money out as dividend out and invest it in an ISA. The idea is not to make much profit, but take out the right mix of salary, pension and dividends to reduce the tax bill to the lowest achievable amount given the various allowances available. I had three accountants in 8 years of contracting, and found them all to be very efficient at advising how to do this. They could usually look at the income earned and your projections for the rest of the year, and advise what to do in about 10 minutes flat.

Dynamoaccounts

Milky_Mocha wrote: »

So companies like contractor angels who offer 81% retention and First 4 Contractors who offer 90% retention, using "unique" tax solutions....illegal? Loophole? Or just clever accounting?

I would very much doubt that these guys are fully compliant. There are a number of instances where they've been described as compliant, obtained baristers opinions, etc but when it comes down to the wire it'll be the contractor that's liable.

Safest way of contracting would be either through your own limited company or an umbrella. Even with the changes in legislation this year (dividends), the limited company route is the most tax efficient when your contract is outside IR35. If inside then doesn't make too much difference. :beer:

bod1467

Dynamoaccounts wrote: »

Hmm

Am I the only one who smells reformed mystery meat in this post?

Andy_L

Milky_Mocha wrote: »

So companies like contractor angels who offer 81% retention and First 4 Contractors who offer 90% retention, using "unique" tax solutions....illegal? Loophole? Or just clever accounting?

I believe its advertising puff. To get to high numbers like that they assume you can put almost everything through the books as expenses including the commute to work & lunch which you can't do if youre the common umbrella user who's only working for one customer at the same site all the time

paddyrg

It's worth remembering that high return schemes sometimes end in tears. I know a lot of people in film and TV used one accountant who got into some hot water, it meant that all their clients got very thorough tax examinations with all the stress and costs that came with that!

theEnd

With the new dividend tax, there's so little difference between PAYE and Ltd company now. Not sure about the umbrella and offshore stuff. Presumably big savings, but also many risks.

Dynamoaccounts

theEnd wrote: »

With the new dividend tax, there's so little difference between PAYE and Ltd company now. Not sure about the umbrella and offshore stuff. Presumably big savings, but also many risks.

Depending on the hourly/daily rates, there is still a good difference between the PAYE & Ltd options. Also remember that from 6/4/16, PAYE/Umbrellas are no longer able to process travel & subsistence claims due to the new SDC rules but you can still get tax relief on these through the limited company route.

As for offshoring (and EBT schemes) these are being targeted and closed as ruled evasion. Those that run these schemes will get away from it without penalty however those participating will be required to pay back the tax plus penalties and interest. :eek:

bod1467

Dynamoaccounts wrote: »

Stuff

User reported for using his company name as his forum name. (SPAMMER in waiting?)

Some of us have been bounced off the forum previously for (inadvertently) using a name linked to a company ... so let's keep things consistent.

HappyMJ

Milky_Mocha wrote: »

Does saving a lot of NI reduce your pension pot?

Sorry I've only just got back to this thread.

No it does not reduce my pension pot.

I will get £155.65/week in new state pension and that's it no matter how much NI I pay....so I choose to pay zero NI.