I'm in a permanent employment job that pays a base salary of £95K per annum and around £45K in stock-options though that varies according to stock prices. For purposes of Mortgage I suppose it's the fixed component that's considered, so for me that would be £95K pa. I'm getting offers for offshore clients (no UK presence) and they are willing to pay £120K and some stocks. Overall it's a good income - wouldn't say it'll make me an overnight millionaire but at-least wouldn't be classified as someone who lives cheque-to-cheque.
Since the companies/clients are not in the UK, they'll pay lumpsum monthly amount and I need to do my own taxes - so will be self-employed. I'm planning to go for registering a Private Limited Company and be the sole director + shareholder and withdraw a combination of salary+dividends. From what I worked out, the best possible scenario for me could be:
- NI secondary threshold = 737/month = £8844/annum. So I can withdraw say £8800 as salary into my personal account. No need to pay employee NI, no need to pay employer NI and still counts towards NI Contribution years.
- Pay Corporate tax from the Company account @19% on amount that remains (£111,156) after withdrawing the above salary. Profit remaining with the company after Corporate Tax = ~ £90K.
- Withdraw just enough dividends from the remaining balance in the Company account, to fall into the lowest Dividend tax slab of 7.5%. I still have 12.5K - 8800 unused tax-free allowance + £2K dividend tax free allowance = £5700. Dividend lowest tax slab is for dividends under ~ £37000. So if i withdraw 37000 + 5700 = £42700/annum as dividends then I only need to pay 7.5% on ~ £37K and no income tax.
- My net take-home is thus approx: £8844 + £5700 + .925*3700 = £48769/annum or £4064/month. This is enough for me to live by and pay rent/mortgage, bills and even save some. If I ever need to withdraw more I'll do so as dividends and pay more tax (32.5% dividend tax bracket I think).
A) Firstly does all that makes sense ? This is the 1st time I'll be heading for contract work (or a work as a non-employee).
B) Next, I'm planning to buy a house. My max budget is £350K, though I'm looking for something under £250K. I've £160K in my account and I'm willing to put a deposit of 100K (after which I'll still have ~60K left with me). This means I need to borrow between £150K-250K. Assuming all other conditions (credit scores etc.) remain same, are mortgage lenders suddenly less likely to lend me £150K-250K, now that I've become self-employed ? I still earn pretty well (or in-fact better) just that I'm deliberately not withdrawing too much fund from my own Private Ltd account to save on taxes, but after-all all that money is still mine as long as I own 100% of my company. Does that put off Mortgage Lenders ? There is nothing that stops me from borrowing and then leaving my permanent job and getting self-employed. Would you recommend this path instead ? I was planning to leave my current employer asap and to buy a house in next 4-6 months.