Contract Drivers

UK PROFESSIONAL DRIVERS FORUMS THE UK PROFESSIONAL DRIVERS FORUM (INTERACTIVE)
1

I’ve been considering it for a while but there are a few things I don’t understand. Any one out there who does this and can offer any advice it would be apreciated.

My question is -

  1. Income tax is 20% and corporation tax is 21% so how will I have more money in my pocket at the end of the week?

  2. I currently get £7.50/hr from the agency so how much could I charge them?

  3. Are dividens taxable?

  4. Realisticaly how much better off am I likely to be by the time I’ve paid for an accountant and other costs?

  5. Wont I need public liability insurance.

I just want to make sure that it’s going to be worth the extra hassle before I do it.

Thanks

2

  1. You wont have to pay NI on dividends as I understand it so that will save you 11%.

  2. Can’t help you there - subject to negotiaions. I guess they will make you an offer.

  3. Dividends are taxable a basic rate. You would have to be a limited company to pay dividends though I think.

  4. You may not need an accountant - I manage without, or it may be advantageous to have one for the first year. Many accountants are setting up limited companies and doing the admin for guys, so it would be worth at least speaking to one, and asking what they will do for their charges.

  5. I should say you would require public liability insurance.

3

Thanks Smart Mart.

I think I must be missing something somewhere.

You charge the agency more for your time. However, out of this extra money you have to pay emplyers ni contributions (as you become an employee of the new company) as well as the cost of setting up the company filing accounts etc.

I know you do end up with more money at the end of it but I can’t quite work out where you make this extra money.

4

madtrucker:
I know you do end up with more money at the end of it but I can’t quite work out where you make this extra money.

You’re charging the agency 15-20% more than before (which on £20k a year is £3-4k extra) and then paying a lot less tax than you did before (lots at 0% as legitimate expenses and then the rest at 21% corporation tax compared to 20% income tax and 11% national insurance).

Paul

5

You do not need a accountant…Speak to the local tax office they WILL put you right. Not only are they there to take the hard earned off you they are also there to help you…believe it or not!!
Filling in a tax return is a dodle as a self employed person, unless you have other sources of income like rental properties, dividends from shares or pensions, then it does become slightly more difficult.
You can even do it all on line now, and you get an instant bill!!!
SPEAK TO YOUR LOCAL TAX OFFICE!!!
hope this info helps

6

Thanks for the replies.

I don’t think I’ll bother doing it as I can’t see it earning that much more money. Apart from that, this makes it seem like its probably ilegal to set up these Ltd companies anyway. Could really do without a big tax bill or worse when they catch up with me :laughing:

7

repton:

madtrucker:
I know you do end up with more money at the end of it but I can’t quite work out where you make this extra money.

You’re charging the agency 15-20% more than before (which on £20k a year is £3-4k extra) and then paying a lot less tax than you did before (lots at 0% as legitimate expenses and then the rest at 21% corporation tax compared to 20% income tax and 11% national insurance).

Paul

listen to what paul tells you cos he knows his stuff on this one.

8

Corporation tax is only payable on profits made during the company year. If your company pays you a salary then the salary is treated as a company overhead - this overhead is deducted from the total gross income of the company along with other expenses ie. tools of your trade, insurances, accountancy fees (if you have any). Depending on how you arrange things you may end up with no profit (you have the maximum salary) and pay no corporation tax. If you do things this way you will have paid tax AND NI on your salary. The more tax efficient alternative is to take a small salary and declare a profit (gross income less expenses). You will pay corporation tax on this profit BUT when you pay yourself a dividend (which may be some or all of this profit) it is assumed that tax has already been paid at 10% (At the basic rate - less than 34600 - dividends are taxed at 10%) and you are not liable to pay further tax (unless you move into the high rate tax band). The result is that you have paid the same(ish) tax but not paid any NI. The point of paying yourself a small salary is

  1. Ensure that you are paying more than the minimum level of NI and
  2. Ensure that you are using your tax threshold entitlement.
    You may elect to leave some of the money ‘in the company’ in which case you can build up a bit of a ‘warchest’ for unexpected events.
    This is only my understanding - I have been doing my own thing since 2000 and the tax man has’nt complained yet - no doubt I will shortly be investigated :unamused:
    Note. Things have changed a bit for the current tax year but the same principles apply.
    If anyone thinks that I have got things a bit wrong please correct me !
9

rhudson - seems you got it about right there.

madtrucker - you’re looking at this from the wrong side. Working through your own Ltd Co your not going to earn a vast amount more than being employed, but you will pay less tax by setting everything concerned with your business against tax.

It makes a hell of a difference when you look at your books at the end of the year!!

Have a read of this: freelanceuk.com/index.shtml

Stan