Any guides to minimising taxable income?

**VectraMan** · 21 October 2006, 20:48

Usually they come along here with the idea they can claim more expenses than they've actually incurred.

And I don't think subsidence is a claimable expense, but might be something to discuss urgently with your local council.

**nucastle** · 21 October 2006, 22:16

lol sorry, subsistence

Obviously there are more 'fruity' ways of doing it - but i was wondering if anyone had given a personal example of how best we can work WITH the laws that our ever so gracious (not) government has passed.

Sick of being taxed to the hilt as a permie - so just testing the water to see what contracting might do to my finances ...

**DaveB** · 21 October 2006, 22:41

Get a good acountant. Listen to what they say.

Other than that pay minimal salary + dividends, and keep *all* your receipts for expenses claimed. Before you claim it ask yourself if you could genuinely justify it to the tax man in the event of an investiagtion.

Expenses are not the way to avoid tax. A salary + dividend setup is the basis for it.

**nucastle** · 22 October 2006, 00:26

Nah dont get me wrong - im not looking to do anything dodgy .... just to be able to take my life now (rent, car payments, food etc etc) and see how his can be applied to a ltd company situation.

Looks like the guides on the SJD site have been the best so far...

Sick of permanent roles where i dont take any of the benefits (out of choice) - Really want to buy a house and start a family in the next few years so contracting looks like the best way to do it.

**malvolio** · 22 October 2006, 07:28

Read the guides we keep referring people to. And you may be surprised to discover how close the tax you pay as a LtdCo and employee is to what a permie pays.

The trick is not to get all wouind up by focusing on the tax - as you suspect, there is a limited amount you can do about that while remaining safe(-ish) from Hector. You no longer go contracting for the money unless you are in a niche area - the average worker and most of the managerial roles pay around the same as a good permie at the end of the day.

**nucastle** · 22 October 2006, 09:16

Yeah ive heard alot of people talk about the similarity about tax burden on ltd's versus permie roles .... then on the flip side ive seen some of the guides on here showing examples of dividends, taper relief, standard expenses and the like coming out with an average tax of about 20% .... a far cry from 40% higher rate surely?

**ASB** · 22 October 2006, 10:19

Originally posted by nucastle

Yeah ive heard alot of people talk about the similarity about tax burden on ltd's versus permie roles .... then on the flip side ive seen some of the guides on here showing examples of dividends, taper relief, standard expenses and the like coming out with an average tax of about 20% .... a far cry from 40% higher rate surely?

I assume you include NI and really mean 41%. If you earn 50k salary then you keep 34.5k of it or an average burden of 31%. On a 100k you keep about 64% of it. But this exlcudes Er's NI which you will be paying as the employer.

To maximise your return on it you need to remember you are in two different regimes. Firstly the CT regime, broadly the company will pay 19% on its profits. The only way to reduce this is to make less money. There are rwo simple ways to achieve this. Have less turnover or more chargeable expenses.

When travelling [on business] stay in the Dorchester, when flying travel first. This will ensure you have less taxable profit. Of course in effect this means you get to keep 0% of this segment of cash rather than the comapny keeping 80% of it but it does save tax.....

You can increase salarys, but then of course they are in the income tax regime so this not cost effective.

You can increase pension contributions (but this is only really deferring the tax).

Assuming you are outside IR35 the trick is to get out the Cos profit without being subjected to any additional tax. So low salary, high divis is the way to go. A salary of 5035 is ideal for this purpose, then up to the basic rate threshold in dividends. Basically this means no more than 30k of net dividends. you will have to pay 25% on anything over this. Of course if you have a partner with some spare basic rate tier you could pay them some dividends - assuming they have the appropriate shareholding and you do not believe the IR will win the upcoming S660 appeal.

Getting any balance efficiently generally involves waiting 2 years, winding the company up and applying for and getting esc16. Then you get 75% relief on the retained funds and the rest is treated as a capital gain (which could of course take you into a higher band).

With a non working spouse here's one way it might pan out.

T/O 100k
Salarys 10k
Genuine Exps 12k

Profit 78k
CT 15k
Income 63k
Divis 60k.
Retained 3k

In this case 2 individuals would both receive 35k net and there is 3k left over in the bank.

If you don't have a spare shareholder with no income, or are worried about S660 then you could pay all the dividends to yourself. In this case - because salrys are only 5k the CT would go up to 16k and the net corporate incomes would be 67k. This would yield about 62k with 8k tax to pay.

If you can defere taking it for 2 yerars and go through liquidation then you see 35k now and only get about an extra 1500 tax bill is a couple of years, levaing you about 6k better off.

Within IR35 it would be 95k subject to PAYE and produce approx 58.5k

**nucastle** · 22 October 2006, 10:43

Thanks for that

My pie i the sky ideas pretty much involve saving for a house and keeping the money in the business to take advantage of this taper relief / company wind up situation. In the meantime taking a min salary, using reasonable expenses etc etc etc.

The search for info continues

**DaveB** · 22 October 2006, 10:55

Best legitimate take home I've seen is 83%. Thats based on sticking to the lower tax bracket, leaving money in the Co. and taking advantage of taper relief. Good if you can manage it but not for everyone.

Any guides to minimising taxable income?