Keep up to 82% of your earnings AFTER tax!
The UK is just like every other country in the World – the more you earn – the more tax you pay.
But it does not have to be like that!
At the lower end of the spectrum – sure – it is often not worth it either in terms of time or money to investigate ways of trying to reduce your tax bill.
BUT – on higher incomes – there ARE opportunities that still exist!
Until now, there have only been 2 major ways of working in the UK – either as an employee or as a contractor. There is now a 3rd way – the Passport Programme.
1. Working as an Employee
Most people (particularly Brits) are just regular employees ‘working’ direct for a company. It is the easiest way to work, is suited to low earners and you can start almost immediately. The amount of tax you pay is the highest that there is – but the long term benefits are also important – like non-contributory pension schemes, holiday/sick pay, public holidays off and so on. If you are not going to BE in the UK, then none of these benefits will apply.
2. Working as a Contractor
Some people have their own Ltd Company and then are called a ‘contractor’. This method of working really took-off from 1996 onwards – with the mass influx of Aussie/Kiwi and SA backpackers working in the UK. Any individual effectively ‘contracts’ with an employer – often a recruitment agency, and then has to get their own Ltd Company and an accountant and distribute the earnings as best they can. Why has this been so popular – for 3 reasons really:
i) No employers NI on Dividends – that is an amount of 13.8% and is often reflected in a pay INCREASE to account for this:
ii) No employees NI on dividends – as this is the main way the income is distributed, then a big saving of 12% on the first £44,000 of earnings and then 2% above that.
iii) VAT is reclaimable on all business expenses – not an enormous amount normally, but enough to pay all of the accountancy fees for a start.
This whole system of Contracting in the UK is under attack.
There has been a sustained onslaught against Contracting in the UK – pretty much in every year since 1996. From all sources – from Trades Unions saying it messes up pay deals, to the Inland Revenue (now HMRC – Her Majesty’s Revenue and Customs as it is now known). Firstly in 1999 with the introduction of a document – now famous in the UK, called IR35 giving their view about Contracting in the UK – saying what you can do and what you can’t do.
Finally – this is now being replaced – after Contracting has been going strong in the UK for the last 20 years. It is being looked at RIGHT NOW and there is no name, even at this stage, for what HMRC want to call it.
But they will call it something – and it will tackle what HMRC currently regard as ‘Disguised Remuneration’. The idea is that you are working as an employee but are wearing a ‘disguise’ as a Contractor and thus are paying less tax – so you are an employee ‘in disguise’. The days of simple ‘Contracting’ in the UK are looking likely to be over by the end of the tax year – that would be 5 April 2017.
Want to know more contact email@example.com
3. Working under the Passport Programme
The exact details of the HMRC current consultation have not been published yet – and it is expected that this will occur before the end of the Calendar year 2016.
What we do know, is that to be part of the Passport Programme and to receive all of the benefits of the programme – a number of conditions need to be met
i) You have to be earning at least £25 per hour or more to reap the rewards – roughly at least £50,000 per annum
ii) You have to have a ‘residency’ review for tax purposes personally to ensure that it does apply
iii) The benefit compared to simply being an ‘employee’ is normally in the range of 10-20% of your gross earnings per year. Never below this figure and never above this figure – so that is what we are talking about! But 10-20% of your gross earnings for a couple of years can be a healthy sum.
However you decide to work – it is always going to be at the forefront of one’s mind – is it the right thing to do? Am I paying the correct amount of tax? What could I do to pay less tax?
Now – what is undeniable – is that it is EASIER to do pretty much nothing at all and get a job in the UK as an employee. Your pay will be significantly lower of course – but it is easier. Your employer pays 3 things before they pay you
1. ‘Employers’ National Insurance Contributions – at 13.8% of your earnings – that’s 13.8% on your gross earnings.
2. ‘Employees’ National Insurance Contributions – at 12% of your earnings up to £42,996 per annum and then 2% above that
3. Income Tax – sometimes referred to as PAYE (Pay-as-you-Earn) – taxed at 20/40/45% depending on earnings.
This is the basis behind ALL personal tax planning in the UK.
Is this really the best that one can do?
No it is not!
As you can see, when you compare the 3 methods of working, from about £25 per hour or £50,000 per year, then the Passport Programme really comes into its own!
Not before then – but after £25 per hour – the difference is clear.
WEEKLY TAKE HOME PAY – in £
Hourly Rate – Weekly – Employee – Contractor – Passport – % Increase over Employee
12 – 500 – 401 – 403 – 410 – 2
25 – 1,000 – 708 – 843 – 820 – 11
37 – 1,500 – 1,010 – 1,115 – 1,230 – 15
50 – 2,000 – 1,298 – 1,420 – 1,640 – 17
75 – 3,000 – 1,940 – 2,100 – 2,460 – 17
100 – 4,000 – 2,468 – 2,700 – 3,280 – 20
125 – 5,000 – 2,996 – 3,350 – 4,100 – 22
150 – 6,000 – 3,525 – 3,850 – 4,920 – 23
• assumes a 40 hour week
• assumes working in the 2016/17 tax year
• assumes accountancy fees of roughly £1,500 per year
• assumes deductions of about £5,000 in allowable expenses
To find out if you qualify make sure you contact firstname.lastname@example.org
It won’t cost anything at all – but we will need to take some basic details from you, what you are intending to do and so on – and we will be able to provide you with a more personal answer!
Get in touch with us today and let us put you on the right path!
For free of course.
John is offered a job at £500 per week – what is actually going on and how much will John get each week?
Employers NIC 48
Gross Pay 500
Employees NI 41
Tax (PAYE) 58
Take Home Pay £401
So it will cost an employer £548 to be able to pay you £401.
John is offered a job at £1000 per week – what is actually going on and how much will John get each week?
Employers NIC 118
Gross Pay 1,000
Employees NI 100
Tax (PAYE) 192
Take Home Pay £708
So it will cost an employer £1,118 to be able to pay you £708.
John is offered a job at £1,500 per week – what is actually going on and how much will John get each week?
Employers NIC 186
Gross Pay 1,500
Employees NI 97
Tax (PAYE) 393
Take Home Pay £1,010
So it will cost an employer £1,686 to be able to pay you £1,010.
John is offered a job at £2,000 per week – what is actually going on and how much will John get each week?
Employers NIC 254
Gross Pay 2,000
Employees NI 106
Tax (PAYE) 596
Take Home Pay £1,298
So it will cost an employer £2,254 to be able to pay you £1,208.
For more information and advise please contact: email@example.com