FORUMS > The Sin Bin > Going from PAYE to contract.Help please! |
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| Quote: Dally "Never.
But, I'll ask you a question - when did you last study the law in this area?'"
That is what I pay an Umbrella company for, it is the only way to work if you fall under the IR35 directive, a directive which is the clearest bit of legislation HMRC have ever devised BTW.
It is quite clear if you fall into one of the IR35 list of employment, if you do you can either work as a contractor under PAYE on a short term contract or as a contractor working for an agency which is what an umbrella company is, you can not be self employed and many companies will no longer deal with self owned limited companies. There is very little grey in this area and very little that HMRC will pick apart if you use a reputable company.
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| Most one man band limited companies like this register for vat under the governments flat rate scheme. You can then charge your ustomers 20 percent but only have to pay HMRC 14.5 percent or less.
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| Again, the only word of warning I'll give to the OP is that you are now walking into the deep end of the swimming pool, you have to be VERY disciplined to run yourself as a Limited Company and when you throw in VAT as well then you are talking about a complete change in your perceptions of how you earn money and how you pay taxes.
If you've arrived at this point from being a PAYE employee for years to suddenly being self employed then stop and think about how you are going to organise the fact that the money that gets paid into your bank account every month is NOT all your money, some of it belongs to HMRC and they get rather shirty when you don't hand it over to them.
Been there, bought the t-shirt, had the t-shirt repossessed ![Very Happy icon_biggrin.gif](images/smilies//icon_biggrin.gif)
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| Quote: Karlos "This is the quandary i have to be honest. Would this mean I would be better paying myself 35k a year and then leaving the rest of my earnings in the business account or would i then be hammered for other taxes etc.
Sorry if these are obvious questions everyone but its the first time ive had to work like this.
Thanks for all you posts as well everyone!'"
Its a difficult question to answer because everyone's circumstances are different. For example, if you have a wife or partner that doesn't currently work then that is an obvious easy route to get money out of the business tax free. Your best bet is to go and see a good local accountant who will be able to advise you based on your own personal circumstances.
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| Karlos,
The sensible thing is to get advice from an accountant. All will have dealt with this scenario before, all will be able be to advise based on the IR35 rules. It may cost you a few quid up front to get their advice, but they will probably re-assure you and remove a lot of the worry and confusion that you have.
You do not need to go the Limited Company route. As stated by others this does have advantages - you can pay a small salary with the usual PAYE & NI deductions, and then pay yourself a dividend. Dividends attract a flat 20% tax, and no National Insurance. And this is irrespective of whatever you total annual earnings are from all sources.
The main thing to be mindful off is if you go Limited, Self Employed, Unbrella, you will have to employ a bit of disciplined administration. This will not be a big burden if managed continually, and is not rocket science.
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| Quote: SBR "Yup. Just like paying into a pension by salary sacrifice or the various Income Tax allowances and reliefs. There are [iloads[/i of legalised methods of tax avoidance. None of which are any different from a moral standpoint.'"
They are completely different form a moral standpoint because its blindingly obvious what the differences are between the situations. The government expressly grants you tax relief on pension contributions as an incentive to save for a pension. They have not deliberately set things up for the self employed so they can avoid tax. That is no different than "doing a Jimmy Carr". It was obvious the money that was paid to the K2 company were his wages for his services. It is equally obvious a contractor's company is getting the contractors wages for his services. They should be therefore taxed as income tax not capital gains. The fact there are things like tax relief on pension contributions so this is the same is a ridiculous argument. We are dealing with income and income should be taxed as such.
If its OK for contractors to pay themselves via dividends to lower their tax then its OK for Jimmy Carr to do what he was doing. Clearly neither are morally acceptable or they both are.
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