Reply With QuoteFrom those numbers it sounds like PAYE is the way to go...assuming you have taken into account net pay from both scenarios...have you calculated what the holiday pay would be worth per month?
Apologies if this is a duplicated post, I’m sure it’s been covered before but I also guess some things have changed with regard to IR35, etc.
After a frankly horrendous 6-7 months work situation (of which I’ve not done any for the last 4), I start a new position on Monday. It’s temporary(ish) but the money is excellent. I have a choice of being on the books as PAYE (which has its advantages, like holidays) or I can be a self employed contractor provided I do it through my own Ltd company.
The difference is around £500-700/month. I expect to do about 3,000-5,000 business miles in 6 months for which I’ll get expenses, but can offset against the tax.
I have some thoughts about IR35 but can also show my income to come from various sources, but I don’t know if that gets me off the hook.
Is it worth sacrificing the cash and getting paid by PAYE or doing the self employed thing?
Cheers
From those numbers it sounds like PAYE is the way to go...assuming you have taken into account net pay from both scenarios...have you calculated what the holiday pay would be worth per month?
What’s your line of work, and when you say you can show various sources of income, what exactly do you mean?
I (like a few others on here) run a limited company but legitimately have a number of clients (6 currently). Contrary to popular (and poorly informed) myth, these days there isn’t really a huge financial advantage operating through a limited company unless you’re willing to evade tax. I bet your £500-700 figure would, in reality, be considerably smaller...
Ultimately, if these guys are effectively taking you on as a full time employee you should be on PAYE.
I’m going to be working as a consultant, but for essentially one client across a range of sites.
I have other income streams that come from a couple of sole trader operations. They don’t generate much income but it isn’t zero.
The difference is £500-700/month because the gross day rates for PAYE vs self employed via Ltd are different. If you take holidays into account then it probably averages out around £300/month better off as a Ltd per annum.
I don’t want to evade tax at all, I’m just trying to work out what the benefits might be.
Not per month but I’ve worked it out over what I expect the 6 month period might be and I’m theoretically still up on the deal if I go Ltd as I don’t expect to take any holiday in the next 6 months as a) there isn’t really anywhere to go, b) Mrs John is a teacher and is about to start back at school and c) I’ve essentially just had 4 months of enforced and unpaid holidayOriginally Posted by Boss13
Not sure where any benefit might be working via a company these days. You’ll have the cost of an accountant and all the hassle that goes with running a company. Don’t think you could make the necessary arrangements before Monday if you do go down the company route.
Sorry I certainly wasn’t suggesting you wanted to. I was just making the point that there are quite a few folks who mistakenly believe you can legally get away with paying tiny amounts of tax on high take home money. This isn’t the case.
Good luck with whatever you decide
Are you operating as a business to business relationship or as an employee. What is your preference? What does the client think? How is work defined? Do you get paid based on deliverables or time? Etc...
There are a number of factors regarding IR35 and the imminent changes mean that the client decides status soon irrespective of what you perceive. Many clients have already set themselves up into a no hassle situation i.e. Shifting away from using the tradional contractor model and that has gravely impacted many freelance and contract workers especially within finance and larger clients.
If you are operating b2b then outside IR35 makes sense, but be careful of if that status could change next year (depending on client decision) and the tenure or duration of your services and whether you stay beyond any status change as that could impact you in the future.
Best of luck.
This. The impending IR35 legislation has devastated the contract market in my line of work. The fact that your client is even offering you the option of PAYE suggests that you would fall inside of IR35 come next April anyway, so your client would have to pay you PAYE regardless if they wanted to stay on the right side of HMRC.
I was advised recently that additional income streams are more or less irrelevant when assessing your status as a "hidden employee" or not. I don't think it does get you off the hook.
Thats correct - each revenue stream would be assessed individually on its own merits for IR35 status.
And mine. My last client decided to press ahead with the implementation in April regardless of the year’s postponement. I was offered (last minute) either PAYE through the current agency, or Sub-contractor via an approved Umbrella Company. There wasn’t enough time to faff around with the UC, so went PAYE for a couple of months.
Not impressed, I can tell you!
If the role is possible temporary and you are also free to consult other firms then go Ltd.
If you’ll be exclusively theirs for a period, take the PAYE and hammer the pension contributions.
This will work until April 2021, but even temp positions may fall within IR35 from then.
Sounds like you'll have one employer in spite of working as a consultant on multiple sites; will probably be better off as PAYE although it will cost you, as you say, £6k per year (if you're there that long!)
If necessary, you can create a limited company within 24 hours directly on the HMRC website - IIRC it was £12 when I did this a few months ago.
The email with my company number arrived the next day, and gov gateway, tax info arrived by post over the next week or so.
You can create a company, and convert it do dormant status if you decide to go PAYE.
There is then no requirement to file returns as long as the company remains dormant.
Thanks for all the advice and input.
I’ve never done a Ltd before and I’m not doing it to dodge any tax by taking dividends, I’m quite happy to pay what I owe but the benefits are mainly that the rate is better and that I can offset the cost of the home office, mileage and stuff like that against the tax.
But if it’s too much of a headache I’ll take the hit and go PAYE.
The main advantage will be the travel I think- if you are PAYE you have to finance from tax paid money your travel to your normal place of work as a contractor you can claim this as a business expense and so save 19% Corp tax.
The other advantage will be a bit of flexibility as to when you pay some of your taxes.
Disadvantages will be potential VAT liability, accounts fees etc
There may well be a small tax advantage but if you see any offers of retaining large percentage of earnings either ask a reputable accountant, post on here or run for the hills many contractors' lives have been ruined by these schemes which they believed were legal but have been deemed by HMRC not to be.
Taking dividends from a Ltd Co, is not a tax dodge.
You will also have fees when you close the company and they vary significantly depending on how you do it. If you have more than a certain amount left in the company, costs go up significantly, but then you can also make use of ER. What we don't really have an indication of (unless I've missed it) is the percentage difference in take home. Personally, unless you see yourself being able to contract outside of IR35 long term, I'd just go PAYE if the percentage differences in take home are not huge.
There's a lot of useful info on this thread about IR35. For a short term contract, it makes sense not to incorporate.
However if you're looking to investigate this, then there are plenty of contractor accountants out there who specialise in people working through companies. When I was doing it, the fees were ca. £40/week for them to set up and administer a limited company, pay payroll, do tax returns and advise on dividends and close things down. I think it's about £130-150 per month now. However if you know you're going to be doing contracts for a number of years, then maybe revisit.
It is not illegal to withdraw dividends from a company, provided you pay tax on them. If you leave some of your money inside the company and don't take it out either as salary or dividend, then when you wind up the company , potentially this could be treated as a capital distribution and you would pay a lower rate of tax on this.
Mine is £78 per month, which compared to everyone else I know who does it, seems a bargain.
I won't be anywhere near the VAT threshold, but understand that there will be fees to take into consideration.
It's approaching 20% in favour of being LTD - that's after I take into consideration tax, NI, making my own arrangements to pay my student loan, etc. and that alone would cover a sizeable chunk of my utilities.
Did PAYE. Spoke to an accountant, worked out some numbers and took into account the costs, what the rate is for NIERS if you're on your own in a Ltd, what I can offset (not much) and when (not very often), what my holiday entitlement will be worth in cash and once I'd taken all of that into consideration, what looked very attractive on paper is probably worth about a fiver a day, so it just isn't worth it.
The wages are good - the contracted rate was definitely worth a bit more, but there's no headache with the paperwork and it reminds me how nice just being paid is!
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