2 year rule - help me count

[tino]

Learned friends,

I'm aware of the 24 month rule and will shortly be approaching the "point of no return".

I do however happen to have an accommodating client who has asked me to calculate the real cost of keeping me at this location beyond this point (if that makes the FD baulk then they will look to relocate me to London from Southampton way).

I was asked roughly how much it would cost them and I responded by telling them how much I pay in expenses per month, which runs to around a £100 a day uplift (2k per month).

Am I on the right lines?

Additionally (and this might be a really stupid question) where is the tax paid? Would I need to pay corporation tax through taking this as a dividend or could I claim it as an expense from the limited and pay BIK tax against that amount?

Gracias senors

[northernladuk]

100 quid a day? So you are going to ask your client for something like a 25% uplift for an issue that has nothing to do with them? Wow, now that is accommodating....

You do know the point of no return is when you KNOW you will be at site over two years? i.e. at the beginning of the contract that takes you over the limit?

Is your client going to just up the day rate to suit or is he going put some system in so you can claim expenses off them? If he is just going to update your day rate but no expenses you should know how that works surely?

[ASB]

20% of whatever you currently claim as expenses. That's roughly the additional tax that will be being paid.

edit

On reflection that's crud.

Current position is you are reimbursed x, lets say 10k, no tax or ni etc since it's chargeable.

Future position is that you pay x, say 10k. But that will be subject to your marginal rate (40%) plus NI (BIK). So you will only see about 5k of it. So 5k short. The get 5k out of the company you would need an uplift of a net 5000.

So this is a net dividend of 5k, as a 40% tax payer = 6666. or gross bills of 8000.

Alternatively forget the ex's and look at a gross rate inclusive (i.e. just bill more).

To recoup 10k you'd need 16k of extra billings. 16k x 0.8 (pay ct) x 0.75 (pay additional liablity) = 9600

[Bunk]

They don't need to increase your rate by £100 (the full cost of travel) because you're already paying for the cost of travel. The difference is that you'll soon have to pay the tax as well so that should be what the increase is.

[tino]

100 quid a day? So you are going to ask your client for something like a 25% uplift for an issue that has nothing to do with them? Wow, now that is accommodating....

You do know the point of no return is when you KNOW you will be at site over two years? i.e. at the beginning of the contract that takes you over the limit?

Is your client going to just up the day rate to suit or is he going put some system in so you can claim expenses off them? If he is just going to update your day rate but no expenses you should know how that works surely?

They asked me what my liability would be as they're very keen on keeping me until the programme closes. when I started out here there was no expectation that this would go over 2 years - it could be bloody 4 now looking at the schedule.

I'm well aware of the notifiable period and my current contract expires 3 months before that point. We're doing this well in advance in case I need to change locations etc etc.

I'm more concerned about what the actual logistics of claiming expenses be if I remained here?

A) Bill as normal, claim expenses from LTD, pay BIK Tax?
B) Bill as normal, claim dividend, pay tax as normal?


Tar

[tino]

20% of whatever you currently claim as expenses. That's roughly the additional tax that will be being paid.

They don't need to increase your rate by £100 (the full cost of travel) because you're already paying for the cost of travel. The difference is that you'll soon have to pay the tax as well so that should be what the increase is.

Thanks both

[ASB]

Thanks both

Check the update!!

[speling bee]

Any wise ones care to advise whether it makes a difference if the client changes the contract to make the supplier's base at the home office and then the client directly purchases all travel / accommodation via their own systems. I think we discussed this before but I forget the conclusion.

Of course the daily rate would then be adjusted down.

[ContrataxLtd]

Learned friends,

I'm aware of the 24 month rule and will shortly be approaching the "point of no return".

I do however happen to have an accommodating client who has asked me to calculate the real cost of keeping me at this location beyond this point (if that makes the FD baulk then they will look to relocate me to London from Southampton way).

I was asked roughly how much it would cost them and I responded by telling them how much I pay in expenses per month, which runs to around a £100 a day uplift (2k per month).

Am I on the right lines?

Additionally (and this might be a really stupid question) where is the tax paid? Would I need to pay corporation tax through taking this as a dividend or could I claim it as an expense from the limited and pay BIK tax against that amount?

Gracias senors

Hi Tino

Thought I'd give you a worked example of how the calculations may look, based on £2,000 per month of expenses you can no longer claim from your company tax free.

£2,000 per month is £24,000 per annum in expenses your Co can no longer reimburse to you, therefore, you need to take out a dividend to cover this. Assuming you would pay high rate tax on this you would need to declare a dividend of £32,000 so that after tax you are left with £24,000.

The company therefore needs additional reserves of £32,000. £19,200 of this would be made up from the expenses your Co is no longer paying (£24,000 more profit less 20% CT) so you need further additional profit of £12,800 (after tax) which equates to £16,000 in additional billing.

Assuming you work 230 days a year the £16,000 extra would mean an uplift needed of £70 per day to leave you no worse off from a personal point of view.

I have made a number of assumptions here thought i.e. doesn't taking into account any potential flat rate saving on the additional income, assumes you are just a high rate tax payer for dividends, doesn't look at potential for going over £100k and losing some personal allowance or over £50k and possibly paying back some child benefit or even the potential to still claim expenses and pay the BIK on them.

I hope it gives you a ball park figure that you may want to discuss with your (very accommodating) client. Run this by your accountant who should be able to give you a more personalised calculation based on your exact situation.

Also, if I was a very picky HMRC inspector I'd be arguing that you now expect to be there over 2 years because you are discussing all the implication of such but that's probably a whole different discussion.

Martin
Contratax Ltd

[northernladuk]

Two things to consider as well...

If you do a lot of mileage the rate will drop after 10k so your monthly loss will be lowered and would be fair to factor this in to your client...

Asking your client for an uplift of £70+ quid is a lot bearing in mind these are your business costs and your issue, not theirs. Be careful when considering how accommodating they are. There is a difference between them paying a little more to keep your skills and you having them paying your business costs outright. If they are willing to go for it then fill your boots. Just bear this in mind when negotiating.