IT contractors or accountants - advice needed please

hi robb

Well-known Member
Good Evening guys,

I need some advice from you. My other half has just got a short 3 month IT contract down in the south west and starts next Monday. As it is only 3 months, he has registered with an umbrella company to save hassle and costs of setting up a limited.

He's going to be staying with family down there and will travel in to work from theirs on the train each day.

He will be getting paid a rate of £350 per day.

Great we thought until a few minutes ago when we were looking at what take home wages he can expect. It then got very confusing.

Looking at the umbrella companies website, it turns out he will have to pay from his net pay the 12.8% employers national insurance contributions. This was a bit of a shock, but on the good side it also seems he can claim expenses. In this case, £5 per day food, £25 per day accomodation as he is staying with family, and of course his travel.

The expenses are class e??? which means they aren't actually claimed back but the ammount in total is offset against your net pay. So if his expenses are £1000, and his monthly pay would be £7000, then his taxable income is only £6000.

Hopefully so far we have managed to understand all that ok.

The next part gets us though. If we are understanding things correctly he is going to get taxed at the following rates weekly

upto first £100 = 0% tax
next £42 = 10% tax
between £142 and up to £622.50 = 22% tax
Anything over = 40%

As a significant part of his wages are above £622 it appears that he will get taxed at 40%.

Now the bit we don't understand. What happens if so far in total (including what he will earn from this contract), his income would not go near the level required in a year to hit the 40% tax bracket?

Does he claim it back? Or will it just sort itsself as they will know he hasn't earned the 40% bracket?

The other thing which is confusing us is it appears he will have to fill in a self assesment, even though he is PAYE tax, is this right?

Can someone shed some light on all this for us, our brains are fried. And if possible, can someone give us a rough guestimate as to what his monthly take home pay for the next 3 months will be. Assuming a standard tax code.

Many many thanks.

Sue
 

FaxFan2002

Well-known Member
Sue,

If you setup a limited company and use an accountant (I use SJD Accountancy who do all the accounts inc. year end, payroll etc. @ £100 per month they will also setup the limited company). It's not daunting it's really easy!

Basically get paid minimum wage ~£11k a year

Be able to claim back all expenses

Put the invoice in +VAT and if you join the VAT FSR you'll only pay 12% VAT back to the VAT man for the first year - goes up to 13% in the second year

Take out divi's which won't be taxed until earnings reach ~£38k a year

However you will have to pay corp. tax

SJD basically provide you with spreadsheet that you fill in and it takes into account all this telling you how much you have left at the end of each month to take out.

Drop me a PM and I'll fill out an example if you like - if let me know what expenses are likely to be (train, food, living - bear in mind you'll need invoices for this), I'll stick the rest in and email and you can have a play round with the figures!
 

hi robb

Well-known Member
Hi guys,

Many thanks for the replies. At the mo, we would rather just use the umbrella for the initial 3 months and if then the contract is extended, we'll switch to a limited.

It's the tax which is confusing us. So far in this tax year, the other half has lets say earned 5k so not a lot. This is actually below his personal tax allowance, and even taking the earnings from the 3 months contract he's about to do into account, he would be well below the threshold where he pays 40% tax.

What we want to know is using the umbrella for the next 3 months so doing PAYE tax, will he have to pay 40% on the earnings coming up from the contract then claim the tax back from the tax man?

Or will the umbrealla get his tax code see he's only earned say 5k and work out he only needs to pay 22% tax max on his upcoming earnings from the contract and deduct accordingly.

Also, will he have to fill in a self assesment?

Sue
 

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