Quote Originally Posted by fwd View Post
Just started contracting again after years of being permanent. The last time I was a contractor I paid my accountant £150pcm to use an online tool but this time around I wanted to see if I could do it myself. After some researching I'd like to share my current understanding and hopefully someone can point out any mistakes.

I am VAT registered and on the Flat Rate Scheme, as it's my first year its charged at 13.5%, my only expense is my monthly travelcard.

=Gross Income
-VAT (13.5% of VAT amount)

=Net Income
-Employer NI
=Pre Tax Profit
-Corp Tax
=Profit After Tax (Net Dividend)

For salary I am paying myself above the minimum at 878pcm but will not pay any Employer NI as its below the allowance but will pay Employee NI. Below is my understanding for take home pay.

-PAYE Tax (0 as I will be within the allowance)
-Employee NI (I am calculating as I go along so I can keep track)
+Dividend (I aim to pay enough dividend not to breach the allowance)
=Net Pay

Appreciate any assistance given and thanks in advance.

The VAT you pay on the flat rate scheme is 13.5% of the gross invoice, not the VAT amount and there is a huge difference between the two. If you've got this wrong what else might you get wrong and not realise?

You are probably going to be better off using an accountant, at least for the first couple of years to ensure you are happy you know how everything works. For example, have you considered the fact that an RTI submission needs to be made every time you pay yourself salary (normally monthly or annually)? Have you considered the fact that you may not be eligible for the employment allowance from April 16 onwards?

I know I am biased as I'm an accountant but I genuinely feel you'd be better off using one for the first few years at least. You don't have to spend £150+ per month to get a decent accountant either. We are £85+VAT per month and include Freeagent, Gorilla are the same and there are plenty more out there who will offer bookkeeping software within their monthly fee for much less than £150+VAT per month so give some a call and see what you think.

Hope this helps