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As an ex-IT contractor myself I'd like to add if you are working effectively as an employee (as most IT contracts are - lets face it) you are not outside IR35 and cannot pay yourself small salary/big dividends and not expect the Tax man to come after you.ViperWiper wrote:Hi Egoode,
Thanks for your response. I have not taken the plunge as yet, I am still in the very intial process - contract hunt etc. I haven't explored the options of having my own limited company and I was thinking of using an Umbrella company like Giant.
As you have more experience in this than I have I am wondering if you can examine this hypothetical situation and tell me if its okay.
Assuming I have a daily rate of about £400 a day - then my weekly pay (before taxes is £2000). Making time for holidays / sickness etc I would probably work 46 weeks a year. So total income will be 92 k p.a before taxes.
Lets say I keep salary (thru my umbrella) as 20k (so it would cost me about 23k taking into account employers NI etc) So I have circa 70K income that is payable thru dividends. Most umbrellas companies deduct a 22% tax on it and then pay that amount. Ofcourse, the onus is on the individual to pay any additional task. Most people do not pay this tax till the tax man comes. At that point in time if you pay promptly he goes away - again, please note that this is not illegal.
If this is put in front of home office as it is - will they be upset? Or do I need to increase my base salary to make it look more respectable, the problem there is - higher the base - more tax - less benefits of going contracting.
Thanks and regards,
VW
If you are going to get 70K as dividends you would definelty have to pay more tax. Tax on dividends is higher for high income bracket. You need to check with some Accountant. Paying tax afterwards is more painfullViperWiper wrote:As you have more experience in this than I have I am wondering if you can examine this hypothetical situation and tell me if its okay.
Assuming I have a daily rate of about £400 a day - then my weekly pay (before taxes is £2000). Making time for holidays / sickness etc I would probably work 46 weeks a year. So total income will be 92 k p.a before taxes.
Lets say I keep salary (thru my umbrella) as 20k (so it would cost me about 23k taking into account employers NI etc) So I have circa 70K income that is payable thru dividends. Most umbrellas companies deduct a 22% tax on it and then pay that amount. Ofcourse, the onus is on the individual to pay any additional task. Most people do not pay this tax till the tax man comes. At that point in time if you pay promptly he goes away - again, please note that this is not illegal.