Hi all, is it me that's missing a trick here? I've just had a client in the office to advise me that a reputable website has posted the following statement "so a contractor can effectively earn up to £32,010 plus their £9440 tax allowance without paying additional tax." Am I missing something here, is this statement misleading???
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Not quite. It depends upon the circumstances
It depends upon the circumstances, as long as IR35 does not apply, then a salary of £640 monthly / £7,696 annually; plus dividends of £30,379 would attract no additional taxation beyond the corporation tax due (i.e. 20%)£38,075
The tax free allowance for 2013/2014 is £9,440.00, but if your client receives a salary of £9,440.00 this year he/she still end up paying Employees NI of £203.04 and Employers NI of £240.67.
This is because the levels where Employees NI and Employers NI are chargeable are now below the tax free level for income tax.
In effect, you've saved on the payment of NIC's through this approach as the basic rate for personal income tax and the small profits rate of corporation tax are aligned @ 20% for 2013/2014
Any client package should also include the costs of tax investigation insurance to deal with IR35 risks / contract review, etc.
Yes
but if they took 7696 thru payroll, can they take the 32010 as Divi without incurring tax personally?
Provided that there is no other income from other jobs and the £7,696 is the entirety of salary / savings income and £30,379 is the entirety of dividend income. I'm not going to "ignore" NIC's as there is no basis to do so (i.e. non-resident company / non-resident employee)
http://www.hmrc.gov.uk/taxon/uk.htm
A bigger question is why don't YOU seem to understand it as this is pretty 9-to-5 stuff?
Bring back Investment Inome surcharge
Nice to see you lot doing your bit to deplete the NI fund. Who's going to pay for your client's state pension? Or the hospitals? It's about time IIS was re-introduced on non NICable payments from close companies
Don't shoot the messenger
Accountants are here to advise their clients how best to conduct their tax operations (as well as other things) within the legal framework set out by government. To not set out the most tax efficient way of doing this would be giving bad advice. You may also want to consider that if you don't pay NI you are also entitled to less benefits which offsets the reduced NI, and further to this do you really believe NI is ring fenced for those particular services?
Hypothecation was ended decades ago...
Nice to see you lot doing your bit to deplete the NI fund. Who's going to pay for your client's state pension? Or the hospitals? It's about time IIS was re-introduced on non NICable payments from close companies
Hypothecation was ended decades ago, NIC's of both forms are just another form of income tax pretending to be something it is not (i.e. premiums for social insurance).
I am paid by my client to ensure compliance with tax law and give them options. If they choose to operate legally in such a way as to pay less tax then they are free to do so.
If my client chooses to pay more tax rather than less due to the moral arguments you propose, then I will assist them in doing so, although I've never had that particular request yet.
Parliament is empowered to change the law on this at any time.
Yes it is misleading as extracted here
The statement does not mention the Corporation Tax, but that may have been further up the screen.
Did you post to draw this apparently misleading website to our attention or because you really do not understand tax? I presumed the former until your reply on Tuesday at 16:46.