30% tax, reclaim VAT

My understanding is pretty much what Syph says from talking to others who’ve contracted or are moving into it. The money can be silly, but it’s not risk or drawback free.

Break down of how most one man bands pay themselves, assuming Limited company.

Firstly you charge the client VAT if you decide to be VAT registered. You then pay that back quarterly (iirc) to the tax man. Depending on your VAT status (what field you are in) you may pay back less than 20% but never more.

Right, salary and dividends.

Salary is £11850 per year to keep you from going into the 20% income tax bracket.
Then every thing else paid is paid as dividend.
The first £2000 is tax free as a dividend allowance.
So now you are up to £13850 just paying national insurance, no income or dividend tax.

It then follows the same thresholds as normal salary.
Basic rate £13,850 (Inc div allowance) up to £46,350
Higher rate £46,351 up to £150,000
Additional rate £150,000+

The difference is the percentages paid at each threshold.
Basic rate 7.5% instead of 20%
Higher rate 32.5% instead of 40%
Additional rate 38.1% instead of 45%

However as a business you also need to factor in corporation tax which is 20% of profit but often with a rebate of 10% for contractors, so in effect just 10%. (really complex bit of tax law that I believe is because they tax dividends later)

Still with me? I'm not sure I am.

Let's take that 100k job. I'm not going to do NI because it isn't a lot but be aware the company pays and the individual pays so as a self employed one man band you effectively pay twice.
Over the course of a year you will invoice for 100k plus VAT at 20% so total £120,000.
The tax man will most likely take all that VAT back again. For arguments sake let's say they do.

You now have 100k again.

Pay a salary of £11850 leaves £88,150.
Let's also assume there are no expenses although this would be the point you claim these, before corporation tax comes out.
So 10% corporation tax leaves us with £79,335 to pay out as dividends.

Dividend tax
£2000 at 0% = £0
£32,500 at 7.5% = £2437
£44,835 at 32.5% = £14,568
Total £17,005

Take home would be £62,330. Plus the 11,850 Salary. Total £74,180.

Other things to consider.
Negatives.
No sick pay, no holiday, accountant fees, insurances such as public liability, loss of earnings etc. No company pension contributions.

Positives
Claiming back expenses like account fees, food away from home, mileage, software, hardware, tools, home office, internet, phone. Get your own pension sorted, many company pensions are trash even with the contributions.

I'm pretty sure that is correct, don't go using it as a basis for a self assessment mind.


Edit: a note on National Insurance.
It is only paid on salary, not dividends.
So with the calculations above both the company and the individual would pay 12% on £11,850. So 1,422 for the company and the individual for a total bill of 2,844, in real terms slightly less as it comes out before Corp tax.
Call it 70 and change

To expand a bit on pensions.

I'm not an expert, I believe that is Nexx or possibly Dubs' field.

What I would say is to look at your company pension and make sure it is working for you.

The government minimum contributions are pretty low and it depends on how the funds are being invested.

Companies have to cater for everyone from the office runner to the senior 2 days from retirement. It can mean they are risk averse in their investments. If it goes tits up that senior is going to be pissed off.

IMHO when young you are better off putting at least some of your pension contributions into riskier investments as you have time to rebuild and/or ride waves. As you get older there is less opportunity to recover and on retirement you want everything sitting solid and safe as you won't ever have a wage again.

I have a SIPP which I can't withdraw from for 25 years but I can move funds, decide which level of risk to invest in and at what percentages. It is totally maluable and always growing but I have to sit on it.
It involves some work but is much, much better than what a company going through the motions would offer, even with their contributions.

Sticking with the example above as @live said circa 70k. What would be the equivalent salaried amount to that 70k?

A wild guess, maybe 60k salaried. Including pension contributions from employer, paid leave, paid sick leave.

So a sidenote, had a general browse of contracting roles in IT. Security / Solutions architect roles rates are crazy £650-£950 a day! Damn. Unfortunately the thought of writing documents all day long bores me silly.

So get a mortgage first? Or is that naughty?

Factor in the cost of good quality income protection too, it's a must if you're self employed.

Cosby wrote:

Fucking GDPR. Can I just throw everyone's personal data in the confidential shredding and be done with this? Can't wait to get back to my regular job.

GDPR is an absolute nightmare from my perspective.  Suddenly we have to employ a DPO from somewhere, no-one seems to know the answers to all sorts of fairly rudimentary questions about how it applies in a health setting, we can no-longer charge for the incredibly lengthy and difficult task of wading through someone's entire life story removing references to third parties etc etc etc.

No idea how we're going to afford the DPO (we're looking to try and share one with other practices, but finding someone who both properly understands the legislation AND how it applies to healthcare is proving tricky).  Most ridiculous thing so far though has been having to write a bloody Privacy Statement for kids...

Fucking EU red tape.

Seriously though I think GDPR has gone way beyond what is sensible.

Good luck Nick

Good luck with the interview Nick!

Good luck Nick.

afgavinstan wrote:

Cheers hair and temps.

This job is by no means My Calling, but it's proving very good for my general wellbeing as I tackle getting my house in order and trying to become A Real Adult (saving for car, house etc).

This is how I feel about my work. I don't think I can do better than having a job that I don't mind going to each time I have to go. I'm not especially passionate about anything so I don't think I'll ever have "a calling"

Shift work suits me too as I like the odd sleep in and midweek excursion.

Good luck Nick, smash it!

Awesome man, hope it comes off well.