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rfowler1
27th March 2014, 19:49
Hi,

Hope someone can help as I'm at a loss.

I'm a social worker contracting for a local authority. My day rate is currently £175 but about to go up to £198.


I'm currently using paystream as I was signed up by the guys who got me the role.

Having looked at my payslips I seem to be losing a considerable amount. With expenses I pull back around 650 after ni. At present they aren't taking paye as I'm below threshold.

I'm also losing student loan payments weekly. Happy to pay but adding up quick.

Basically I'm not sure if I'd be better through an ltd. we have one set up and my partner currently does some freelance journalism (around 500 PCM) on top of his paid work. Could he invoice this through the company as we are both directors?

I'm not sure if the umbrella is the best way to work or if we should get at accountant to help us. I'm worried that we could end up in trouble if when I hit the paye threshold as we pay a childminder 300 a week.

How can I best maximise my take home pay? Am I best paying pay stream or getting someone in to help me?

Any advice appreciated!

LisaContractorUmbrella
28th March 2014, 08:09
With an umbrella company you will be paid through PAYE: the umbrella company has a legal obligation to pay employer's NI which will be taken from the contract value, as will their margin. The balance is your salary which is subject to income tax and employee's national insurance. This tax position would be virtually identical if you were to contract through your own Ltd Company if you are inside IR35 - you would be very unlikely to be any better off - you would need an accountant and there would be more administration. If you are outside IR35 and therefore could draw dividends from your company, you would be somewhat better off. There are lots of guides on CUK which explain IR35 and explain what would be required of you as a company director.

HTH

TheFaQQer
28th March 2014, 09:05
I can't understand how you aren't paying PAYE (personal allowance £9440) but are repaying student loan (threshold £15k).

Start by asking your umbrella for an accurate breakdown of where the money is going, before you jump into something which may not be financially worthwhile.

moggy
28th March 2014, 09:45
£175 for 5 days = £875 you're netting £650 so netting over 74%.

Sounds fair to me for Umbrella. That includes as Lisa has said the ENi uplift from your true PAYE rate. So a good return.

rfowler1
10th April 2014, 10:37
Hi guys thanks for your advice. I'm actually getting 575 now with PAYE took off. It's around 64% I take home. It seems excessive to me.

ASB
11th April 2014, 10:27
It seems excessive to me.

Welcome to the world of taxation.

Broadly speaking in the UK there is 12% ee's NI, 13.8% er's NI, 20% tax (yes, the Er's NI is in effect a payroll tax, cue "but I'm not the employer. True. But the only funds the brolly generate is your rate so it's coming out of that one way or another).

It doesn't take a lot of effort to figure that once above the thresholds it will start to mount up quickly.

You could potentially set up a LTD and if outside IR pay dividends. This will in effect remove the NI hit.

northernladuk
11th April 2014, 10:31
You could potentially set up a LTD and if outside IR pay dividends. This will in effect remove the NI hit.

I thought the cut off for efficiency was around £30k... He isn't too far over this so isn't going to be that much more of a saving for a hell of a lot more effort?

I also thought in Kate from B&C's opinion Social Workers were pretty much caught by IR35?

ASB
11th April 2014, 16:45
I thought the cut off for efficiency was around £30k... He isn't too far over this so isn't going to be that much more of a saving for a hell of a lot more effort?

I also thought in Kate from B&C's opinion Social Workers were pretty much caught by IR35?

The key word was "if". I would imagine a social worker is likely IR35 caught. But there are many many aspects to that discipline, so perhaps some are not. So I was only really intending to highlight the possibility.

Now, in terms of the umbrella v ltd argument. Your point is entirely valid. I'm not sure where he cut off is, but consider umbrella v inside IR35 first.

With the umbrella there is an umbrella fee to be paid.

With the ltd there is accountancy - I would imagine these are broadly similar. But there are possible advantages:-

- 5% expenses allowance. Ok CT is paid, but cf tax an NI. This may save about 1% per year.
- 3% ish profit from vat FRS
- 2k from employers NI rebate thing that is being introduced.

Of course, whether these are appropriate to the OP's circumstance or not is a different matter.

Regards the outside IR35 case 30k seems high as the cut off (though it may be). Intuitively the marginal tax rate above the paye threshold of 10k could be simply 20%. This is against approx double that through paye (where brolly or inside ir35).

Now brolly costs have to be considered, perhaps as a guess the ltd work out 1k a year more. Then this would pretty soon be saved by avoiding ni. About an extra 5k.

To me it seems like the threshold would probably be in the region of 15-20k. But every situation will be different.