Warchests

[doconline]

I am shocked! I can't believe there are people who think they can spend money that is not rightfully theirs.

I take less than half of my day rate, the rest stays in the account for taxes and war chest.

Happens more often than would think. Worst case I worked with was someone similar to who NLUK mentioned, spent every penny he earned including the VAT. His attitude was, he would use the months income to pay his VAT when it was due, and his CT wasn't due for 21 months (he was a first time contractor), so would worry about it then. This was all just before the crash in 2000.

[Jolie]

Happens more often than would think. Worst case I worked with was someone similar to who NLUK mentioned, spent every penny he earned including the VAT. His attitude was, he would use the months income to pay his VAT when it was due, and his CT wasn't due for 21 months (he was a first time contractor), so would worry about it then. This was all just before the crash in 2000.

That is just reckless. My company accounts are being prepared as I type, with the CT being due in 2020. But as I continue to work, I am generating profits on which the CT needs to be put asside for the 2021 return.

I always have roughly two sets of CT and VAT stashed away with the war chest. It's not worth the risk.

[BigJohn]

Just to play devil’s advocate although I don’t condone spending owed tax money on mortgages you can’t afford, Gucci, fast cars and faster women. The mere fact of contracting is that you are a business owner and if you’re reinvesting this government money to make more money you’re taking full advantage of the rules that are in place to support businesses by not paying taxes up front like an employee. If you leave this government money accumulating in business accounts out of fear you’re not utilising the benefits of paying taxes later or the leverage of using this money in the time period allowed. (I’m sure it’s explained better in Rich Dad)

I actually set the money aside as I have seen reckless behaviour of others leaving them desperate and i have a fear of being in this position especially with the market we are now in. Plus the greater years of permie life compared to contracting have formed this cautious mindset

[Jolie]

If you leave this government money accumulating in business accounts out of fear you’re not utilising the benefits of paying taxes later or the leverage of using this money in the time period allowed. (I’m sure it’s explained better in Rich Dad)

Not knowing the reasons behind paying CT later, and I hope someone will correct me if I am wrong, but you owe the money in theory as soon as you have calculated the profit. If you were running your accounts wisely, you could pay that tax straight away.

Now, I don't have a problem with people using this money as leverage, but in reality you are gambling with tax money that is not rightfully yours.

We already pay income tax twice a year on account, its not beyond the realms of possibility that CT goes towards a MTD situation and the revenue demand it up front based on the previous years returns.

[edison]

Front-end dev, ex colleague of mine who worked as a contractor at a big bank for 2 years straight. Rate was good (£575 a day). Had an ex-wife and 2 kids but he didn't give them much money. He lived in a pretty deprived (and cheap) area, dressed almost exclusively in primark.

STILL, after his contract ended, he couldn't afford to stay on the bench so he had to take a permanent job after 1 month. For most of the time I've worked with him he was still taking wonga loans to get to the end of the month.

I really can't get my head around it.

How can some contractors be so unprepared?

Must have done a Boris and spaffed it all up a wall?

Maybe gambling? Or drugs? I've been surprised by the number of people I've come across who've lost a lot of money either of those ways.

[BigJohn]

Now, I don't have a problem with people using this money as leverage, but in reality you are gambling with tax money that is not rightfully yours.

I’m looking at the situation that it’s yours until it’s due

[Lance]

I’m looking at the situation that it’s yours until it’s due

you mean "your company's" I hope?

Investing it is fine. Losing it is fine. Not paying it is the problem.
So investing it in a safe place is great. Savings accounts are great.
Might as well pay CT early though as HMRC give you interest on early payments.

[PerfectStorm]

you mean "your company's" I hope?

Investing it is fine. Losing it is fine. Not paying it is the problem.
So investing it in a safe place is great. Savings accounts are great.
Might as well pay CT early though as HMRC give you interest on early payments.

Not as much as savings accounts do, you're better banking all your company money (minus a grand or so) in one of those.

Taxes will all need paying so makes sense to never draw down on the amounts needed for them. The only exception I could imagine would be some sort of life and death emergency where you have a payment imminently due.

[Lance]

Not as much as savings accounts do, you're better banking all your company money (minus a grand or so) in one of those.

Taxes will all need paying so makes sense to never draw down on the amounts needed for them. The only exception I could imagine would be some sort of life and death emergency where you have a payment imminently due.

0.5% from HMRC.
0.65% from nationwide instant access savings.

you can get more than 1% with a 3 month notice account.... On £20k CT the difference is between £75 and £150. I'll just pay early.
If you have more money washing around then a savings account is worthwhile assuming it's not a pain in the arse to setup.

EDIT: Zopa does 5% but it's harder to get out and not guaranteed safe. Although in the past 7 years I've used them I've not lost s single penny to bad debt.

[kanulondon]

As has been said by others I have seen many a reckless contractor in my 10 years in the contract market.

Met one guy, who spent it all and didn't have a pension pot set up. He said something about how his home will be his mortgage.

Many folks don't know how to cut their cloth accordingly. A friend of mine sweats at renewal time due to a big mortgage, new car and a wife that doesn't work. My outgoings are moderate but this is subjective right (childcare + school + mortgage + decent pension contribution) however we prioritised school over mortgage, so we don't live in a particularly flashy house. Got our pre-marital flats on the rental market so should be covered there.

I am on a rate abut 60% higher than when I started out 10 years ago and my war chest is OK. I haven't calculated precisely but I'm pretty sure I could go 18 months + but I'd stop (or lower) the pension contributions after a few months.

K