IR35 - Working half the year - Tax & NI Consequences IR35 - Working half the year - Tax & NI Consequences
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  1. #1

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    Default IR35 - Working half the year - Tax & NI Consequences

    If I only contract for 6 months of the year, does this have unforeseen consequences for NI /Tax when working through an Umbrella / IR35?

    I think I read something on a thread that suggested that if I worked for 6 months at £X a day and took the remaining 6 months off, I'd end up paying more tax and NI that if I worked 12 months at £X/2 a day.

    I think the suggestion was more NI would be paid, but I can't find the post and can't remember the reasoning behind it. Can anyone clarify this?

  2. #2

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    Tax year or real year ?




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  3. #3

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    Can you remember any keywords in the post?

    Use google to search for them.

    In google type <Keywords> site:contractoruk.com/forums

    Post it when you find it so we can have a look.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

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    Quote Originally Posted by GhostofTarbera View Post
    Tax year or real year ?
    Lunar year or Mars year?
    'CUK forum personality of 2011 - Winner - Yes really!!!!

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    Quote Originally Posted by northernladuk View Post
    Can you remember any keywords in the post?

    Use google to search for them.

    In google type <Keywords> site:contractoruk.com/forums

    Post it when you find it so we can have a look.
    Didn't MB31 have some notion about not submitting invoices / timesheets / nonsense until March to pay less NI due to the way its calculated?

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    NI is calculated as-you-go and there's no correction or refund etc, so that might be the difference.

    I.e., Income Tax is ALWAYS calculated over 12 months, regardless of what happens with PAYE. If you pay too much because you only worked Jan-June then you'll get it back. NI isn't, NI is per week (Edit: Or monthly, apparently) I think. If oyu earn loads on Week 1 you pay NIC based on that, and it's gone forever.

    So, to abuse The Salary Calculator - 2019 / 2020 Tax Calculator a little:

    A year on £50,000 PAYE income equates to £95.46 a week
    A year on £25,000 PAYE income equates to £37.77 a week

    BUT,

    If you earn £25,000 PAYE a year, but take it all in six months, then you'll pay the £95.46 a week figure so your take home would be less.

    I THINK that's right, happy to be corrected.
    Last edited by vwdan; 6th March 2020 at 17:41.

  7. #7

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    Quote Originally Posted by vwdan View Post
    NI is calculated as-you-go and there's no correction or refund etc, so that might be the difference.

    I.e., Income Tax is ALWAYS calculated over 12 months, regardless of what happens with PAYE. If you pay too much because you only worked Jan-June then you'll get it back. NI isn't, NI is per week (Edit: Or monthly, apparently) I think. If oyu earn loads on Week 1 you pay NIC based on that, and it's gone forever.

    So, to abuse The Salary Calculator - 2019 / 2020 Tax Calculator a little:

    A year on £50,000 PAYE income equates to £95.46 a week
    A year on £25,000 PAYE income equates to £37.77 a week

    BUT,

    If you earn £25,000 PAYE a year, but take it all in six months, then you'll pay the £95.46 a week figure so your take home would be less.

    I THINK that's right, happy to be corrected.
    I think OP is interested in finding out what their tax bracket (and allowance) be on a 6m gig only and not contracting for the remaining 6m

    e.g. a start in April 2020 (new tax year) on a 6m gig via brolly at 500 p/d. Will the calculation be based on 130k annual (regardless of working 6m or 12m as this is what listentotaxman says)

    and once the tax year is finished, assuming the OP didnt do a gig for 6m, will OP be able to get the 6.7k extra tax they would had paid in the first 6m of the tax year

  8. #8

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    Once again I'm surprised this is so complex for people

    NI is paid on a weekly / monthly basis as wages are paid (unless you are a director of a company in which case its annualised). Which means you can reclaim income tax but cannot reclaim paid NI contributions (of either sort be it Employer NI or Employee NI).

    So if you are working for 6 months at £500 a day (using Clarity's calculator).

    Weekly Income £2,500.00
    NI deductions
    Employer National Insurance £278.68
    Employment Tax £10.93
    Employee National Insurance £119.99


    Income Tax
    Employee Tax £633.70


    Total Net Income £1,431.70



    Now assuming 26 weeks of full time work (130 days) the OP will receive £37,224.20 in cash from a salary of £56820.14 and pay £16,476.20 in income tax.

    The income tax due on £56820 is actually only £10228 so there would be a refund due of £6248 leaving a final take home amount of £43,472 roughly
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    Quote Originally Posted by eek View Post
    Once again I'm surprised this is so complex for people

    NI is paid on a weekly / monthly basis as wages are paid (unless you are a director of a company in which case its annualised). Which means you can reclaim income tax but cannot reclaim paid NI contributions (of either sort be it Employer NI or Employee NI).

    So if you are working for 6 months at £500 a day (using Clarity's calculator).

    Weekly Income £2,500.00
    NI deductions
    Employer National Insurance £278.68
    Employment Tax £10.93
    Employee National Insurance £119.99


    Income Tax
    Employee Tax £633.70


    Total Net Income £1,431.70



    Now assuming 26 weeks of full time work (130 days) the OP will receive £37,224.20 in cash from a salary of £56820.14 and pay £16,476.20 in income tax.

    The income tax due on £56820 is actually only £10228 so there would be a refund due of £6248 leaving a final take home amount of £43,472 roughly
    So kind of like what I said?
    Last edited by vwdan; 6th March 2020 at 22:48.

  10. #10

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    Quote Originally Posted by vwdan View Post
    So kind of like what I said?
    Not quite as you didn't cover the tax refund bit, so I went a little bit further...
    merely at clientco for the entertainment

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