The Contractor Thread
Discussion
Thought I'd start a thread of general contractor discussion. Things like 'IR35', 'which accountants?' or 'how do I do XYZ?'
I've been contracting now for a month and its great, really glad I did it although I've been lucky to find a contract that has potential to last years rather than months. I can't rely on that though and I've got to keep my ear to the ground.
My main goal is to pay the house off as soon as possible.
A gentleman never discusses the details of money but I now earning double my permanent salary. My plan is to pay myself the same wage as my old permie wage (maybe less) and put the rest into savings.
My questions:
I've been contracting now for a month and its great, really glad I did it although I've been lucky to find a contract that has potential to last years rather than months. I can't rely on that though and I've got to keep my ear to the ground.
My main goal is to pay the house off as soon as possible.
A gentleman never discusses the details of money but I now earning double my permanent salary. My plan is to pay myself the same wage as my old permie wage (maybe less) and put the rest into savings.
My questions:
- I guess I'm best keeping some money in the business to pay myself if it goes quiet rather than taking that out of the business and paying the tax on it at that point?
- I can't pay more than 10% off my mortgage in a year so I'll be putting that money aside into a savings account until a point where I can pay a big chunk off. Just stick it in a savings account (crap interest) or somewhere riskier and potentially hard to withdraw?
Ah, ok this puts an interesting slant on things. So maybe I should invest as a company and then when I have the opportunity to pay a chunk off the mortgage then pay a dividend?
I suppose that raises another question; where to invest the money as a company?
This thread isn't just about me btw, feel free to comment on stuff and ask your own questions. Mine is just to kick things off.
I suppose that raises another question; where to invest the money as a company?
This thread isn't just about me btw, feel free to comment on stuff and ask your own questions. Mine is just to kick things off.
Lefty said:
In anything the Directors wish.
My company owns a couple of flats for short term income and, hopefully, long-term growth.
Not generally a good idea for a limited company to own investment properties - capital gains tax and entrepreneurs' relief implications. I'd speak to an accountant before going down this route.My company owns a couple of flats for short term income and, hopefully, long-term growth.
98elise said:
On point 1 yes. Never take more out of the company than you need, unless you can make it work for you. Your first priority is to build financial buffer. If it all goes tits up you will need it.
It's always best to use up all of your lower rate tax band - so director's salary of around £700 pm plus dividend of around £2500 (assuming you're sole shareholder). If you don't use the lower rate tax band you can't carry it forward. JBM78 said:
It's always best to use up all of your lower rate tax band - so director's salary of around £700 pm plus dividend of around £2500 (assuming you're sole shareholder). If you don't use the lower rate tax band you can't carry it forward.
The tax-free allowance or the 20% band? Or both?- don't get involved in any dubious tax avoidance schemes. Just pay yourself a salary and take dividends like any other limited company
- do due diligence on your agency before and constantly during your contract
- do not let invoices build up unpaid
A buddy recently got stitched up because his agency went into administration and the end client had paid their invoice before he found out. One month's income lost.
I had an agency go into administration and because I had credit check / important event alerts I was able to handle the situation (I knew before the employees did). So, be careful. Again, you are a proper business with proper business risks.
Also consider the PCG, who will insure you against this sort of situation.
- do due diligence on your agency before and constantly during your contract
- do not let invoices build up unpaid
A buddy recently got stitched up because his agency went into administration and the end client had paid their invoice before he found out. One month's income lost.
I had an agency go into administration and because I had credit check / important event alerts I was able to handle the situation (I knew before the employees did). So, be careful. Again, you are a proper business with proper business risks.
Also consider the PCG, who will insure you against this sort of situation.
JBM78 said:
98elise said:
On point 1 yes. Never take more out of the company than you need, unless you can make it work for you. Your first priority is to build financial buffer. If it all goes tits up you will need it.
It's always best to use up all of your lower rate tax band - so director's salary of around £700 pm plus dividend of around £2500 (assuming you're sole shareholder). If you don't use the lower rate tax band you can't carry it forward. MagicalTrevor said:
I can't pay more than 10% off my mortgage in a year so I'll be putting that money aside into a savings account until a point where I can pay a big chunk off. Just stick it in a savings account (crap interest) or somewhere riskier and potentially hard to withdraw?
I changed my mortgage to an offset. I then max out my dividends at the beginning of the financial year, put that in the offset, then transfer money monthly from the offset account to my current account.I'm also looking into a directors loan to shift any extra cash into my offset mortgage. As I understand I have to pay interest back to my Ltd company, but its still going to me instead of the mortgage company.
Just saw a banner ad for these guys
http://www.betterpay.co.uk/
What are they doing? Simply contrasting 100% PAYE to switching you to minimum wage PAYE with the balance paid as dividends from a Ltd Co?
http://www.betterpay.co.uk/
What are they doing? Simply contrasting 100% PAYE to switching you to minimum wage PAYE with the balance paid as dividends from a Ltd Co?
There are many, many businesses out there who will tell you all sorts of stuff just to get your custom. Some may very well achieve these extremely low tax rates - but usually by being very, very generous with their interpretation of the tax rules and then sailing very close to (and perhaps over) the legal line.
Whether you chose to use organisations like this is down to your own approach to tax and your attitude to risk.
The one thing you do need to know is that if HMRC do eventually come knocking, the advisers you used will not be obliged to pay back to you the fees they charged you for what turned out to be erroneous advice.
Whether you chose to use organisations like this is down to your own approach to tax and your attitude to risk.
The one thing you do need to know is that if HMRC do eventually come knocking, the advisers you used will not be obliged to pay back to you the fees they charged you for what turned out to be erroneous advice.
V8mate said:
Just saw a banner ad for these guys
http://www.betterpay.co.uk/
What are they doing? Simply contrasting 100% PAYE to switching you to minimum wage PAYE with the balance paid as dividends from a Ltd Co?
Sounds like a dodgy offshore loan scheme to me. I wouldn't go near. The giveaway is the statement "endorsement from leading tax QC's" http://www.betterpay.co.uk/
What are they doing? Simply contrasting 100% PAYE to switching you to minimum wage PAYE with the balance paid as dividends from a Ltd Co?
Also it says "fully compliant with all current legislation" The government can change the legislation to catch people using these schemes.
see here
http://forums.contractoruk.com/accounting-legal/63...
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