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Brian — Fri, 25 Nov 2011 20:35:24 +0000

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Contractor Tax -Some tips for significantly lowering your UK contactor tax

Brian — Thu, 20 Oct 2011 10:13:17 +0000

Some tips for significantly lowering your UK contactor tax

Welcome to the hub on UK contractor tax and taxation issues, I hope you are able to get some really good tips on what options you have available to you.

most UK contractors and freelancers are unaware of all the options they have before them, these options can be the difference between earning an average contract value to making an incredible take home pay.

all available to you through adjusting a few of the right things in your contractor arrangement with your client.

but before we get into that I would like to recap on some of the most obvious contractor tax arrangements that freelancers and contractors use to manage their contractor taxes, some of them are really rubbish at minimising tax but good at eliminating hassle,

Umbrella Companies: these are good at minimising your administrative burden but as a contractor using one of these you are definitely inside of ir35 and thus taxed quite heavily, in some cases worse than a permanent employee! due to the fees incurred by the umbrella company.

you get charged fees to join and leave and administrative fees even when you are not contracting.

Limited Companies: Limited compnies provide several benefits over an umbrella company, in that you can save quite a lot more tax, however you need to be very careful how you set up your contract to avoid getting hit with IR35 status if you get investigated by the HMRC, as well as having to pay an accountant to do your taxes and having your income data downloadable.

EBT contractor tax arrangements – now non viable.

Up until recently there was a third option for avoiding or minimising contractor tax, this is where agencies used an EBT (employee benefits trust) to give you serious tax breaks – in the form of a low interest loan from the EBT fund, so bonuses for example were paid in this way whilst paying the employee a low wage to minimise tax. and then the bonus fell under the EBT rules of a low interest charge, at 1 or 2 % instead of the usual massive tax on normal bonuses.(in some instances as high as 60%!)

the advantages were huge, contractors used to be able to earn 85% take home pay on the EBT model.

the bad news is that this became a non viable solution from December 2010, so if you were with one of these companies you need to be looking for an EBT alternative.

EBT ALTERNATIVE

The only company that i know of at the moment to offer a viable ebt alternative is contractor tax solutions, as their solution is designed in consultation with KPMG & barristers its not a flimsy solution. the benefits are the same as the old EBT solution ie minimum 85% take home pay

The conditions a contractor must fulfill in order to have the contractor tax solution

UK based contractors or freelancers
need to be earning at least £200 per day

On most of these types of solutions you will find a form to fill out which asks for your email and your daily rate of pay, when you fill it in , you get a response as to what your tax savings will be on the solution and info on the contractor tax arrangement that the specific firm is proposing.

Id suggest shopping around for the one with the best service & contractor tax savings, which translates to your take home pay!.

Contractor Calculator– Discover how you can retain a minimum of 87% net contract value

Brian — Thu, 20 Oct 2011 04:39:19 +0000

Contractor Calculator– Discover how you can retain a minimum of 87% net contract value

The Net Pay Calculator alternatively known as the ‘take home pay calculator’ is a tool used by most IT Contractors in the UK, who are concerned about getting the best value for their contractor tax arrangement. An excellent example of this can be found at contractor tax solutions Contractor Calculator

Other major concerns are IR35 Rules and whether a contract is inside or outside IR35 How can you can ensure you have the best contractor tax arrangement?

By using a good Net pay calculator that explains all the benefits of the various forms of contract and ownership eg, Umbrella companies vs limited companies etc.

Contractor Calculator

Since December 9 2010 the HMRC has made IR35 Contractor tax legislation ever more stringent, To calculate net pay on a take home pay calculator has become fraught with danger that is if you use some other service than an expert in Contractor Tax Solutions.

This guide was created to make your life easier and give you the best information to help you make a choice that will save you a lot of hassle and heartache.

IR35 Rules

Ensuring you are outside of the IR35 Rules is the best way to start guaranteeing your contractor tax can be optimised in the most efficient way, to check this out take a look at a good take home pay calculator.

TIPS ON IR35 Rules

The nature of your contract and the nature of your work arrangement determine your IR35 status.

I will have to write a more detailed article on this later but suffice it to say, if you are performing the same work in the same way and using the same tools (owned by the client) as a regular employee, you would most probably be deemed inside IR35.

To make certain that you are outside of IR35 you can use a good net pay calculator as these companies typically provide free IR35 assessment as well as draft contracts to maximise your contractor tax benefits, and make sure that they have a service such as doing your annual tax returns for you.

VAT IMPLICATIONS

Who should register for Vat? Well typically, if youre earning less than 64000 british pounds then vat is not an issue, however if you are one of the lucky few, you should definitely register for vat. This is to ensure that you can claim and collect Value added tax. As It can be a real hassle and adds a lot of complexity to your tax returns and annual self assessments, I would suggest looking for a hassle free approach such as a umbrella company that operates an IR35 insurance, I would suggest consult with a contractor tax solutions expert to get definitive tax advice

National Insurance

Your NI(National Insurance) contributions will need to be paid directly by yourself if you are running a limited or personal service company. Depending on your earnings you could end up paying class 2 NI contributions, for example if you had exceedingly low earnings.

Setting up a direct debit with the HMRC can be a blessing in taking care of this small but important issue.

If you are earning a decent rate you may end up paying a very high rate of both NI and Tax, this can be a crippling experience for high earning IT contractors, and many choose to investigate many of the net pay calculator’s on the market, I would urge you to consult a contractor tax solutions expert as well to ensure your IR35 rules and contractor tax advice is in order.

The biggest contractor tax hassle that UK contractors face is the annual self assessment tax return. This is a major hassle as you are required to keep a record of all expenses associated with your work and all your earnings and work out how to put them in the HMRC form.

This is what the HMRC uses to work out how much tax they can claim off you, and its based on the previous financial years earnings.

Time Management

One last thing to consider is how you want to manage all this time? do you want to spend time doing assessments, going through records, worrying about IR35 and contracts or would you consider all the other alternatives? If you would prefer a less hassle orientated solution I think you should check out a good contractor calculatorcomparison from a contractor tax solutions provider.