Calculating tax for contracting

Eh?

"Ronald Raygun" wrote

My thoughts entirely!

"tim" wrote

OK so far.

"tim" wrote

Yes, but how does (s)he get money from the company?

Answer: any of the following:

(1) Salary as an employee; (2) Dividends as a shareholder; (3) Fees as a sole-trader (contract between company & sole-trader).

It is most usually a combination of (a) and (b).

I do not believe that (c) is a normal route.

I sorry if you can't understand why, I can't explain it any better than I did.

tim

What do you mean by "normal route"? And why should anyone be denied taking an abnormal route?

Then try a different angle. In what way is a combination of (c) and (b) substantially different from a combination of (a) and (b)? One advantage for the chappie is that (3) is administratively easier because it avoids having to operate PAYE. There is also very little difference tax-wise personally: In cases (1) and (3) you pay the same income tax, and virtually the same NI (in one case Class 1 and in the other Class 4, if we may dismiss Class 2 as insubstantial. The company would of course have to pay employer's C1NI in case (1) and not in case (3) but that would just reduce the profit from which case (2) dividends would be funded, and hence Corporation Tax thereon, so all in all it's much of a muchness.

Do you have reasons other than tax reasons why you think this would be in any way considered dodgy?

(i) What are (a), (b) and (c) ? (ii) I thought we were talking about *possibilities*, not what is "normal".