This is a strange one...to me anyway...I don't understand it at all!!
I have a client who is a telehandler and at the moment is self-employed and a subcontractor so is paying CIS tax as he goes.
He works through an umbrella company and they have told him that the law has now changed and he can no longer be self-employed doing this work and that he has to either be on their payroll and it all go through PAYE or set up as a limited company.
He wants to set up a limited company because he says the umbrella company told him he would be much better off.
This is what the umbrella company sent to let him know how much we would be earning, they also told him to register for VAT. To me this makes no sense at all, for a sole trader to become a limited company and register for VAT.
Does anyone know much about this? or can make sense of the calculations below?
Thanks
Rachel
As requested here is an illustration of earnings that would be potentially available if you were working through a Limited Company. This information is taken from you umbrella payroll processed on 11/02/2016.
Money In
Total Amount Of Invoices Raised Inc VAT
780.00
Net Total Of Invoices Raised
650.00
Total Amount Of VAT
130.00
CIS Deduction
130.00
Monies received after deductions and Flat rate benefit
£544.70
Money Out
Personal Expenses
72.40
Business Expenses
29.08
Salary
156.00
Total
257.48
What's Left?
287.22
What does my company owe?
PAYE
4.00
Total amount of Tax
4.00
How much does my company still owe Me?
Expenses
72.40
Salary
152.00
Total
224.40
Dividends Available
283.22
Money Available to Draw (Salary + Expenses + Dividends)
507.62
For CT Refund
46.56
For ease I have highlighted the amount of money available to take home through the Limited Company. In contrast to this for the same week with the same amount of expenses your take home pay through the umbrella side of the business was £452.94, a difference of £101.24 per week extra if you were contracting through a Limited Company .
Although I get roughly the same figure, I don't understand the way they've calculated it. £4 PAYE? Well under the threshold assuming full PA available. My calcs include the same deductions but I would query the £72.40 a week personal expenses?
I purposely haven't included the CIS deduction (which I thought were for construction employees only?) as it doesn't have any bearing on the calculations. The way they have handled it is as a CT refund which is wrong, as I'm sure you know. You can use your CIS suffered to offset your CT. Obviously he will be £130 worse off weekly than my figure shows but would get that back as a lump sum after the tax year.
I'm hoping I've calculated everything properly. Please advise if there is anything I've missed or miscalculated.
Invoice + VAT
780
VAT to pay @ 13.5%
-105.30
Gross Profit
674.70
Business Expenses
29.08
Personal Expenses
72.40
Salary
156.00
NI
0.12
-257.60
Net Profit
417.10
Corporation Tax
-83.42
Dividends
333.68
less 7.5% dividend tax
-13.65
on £9427.48
320.03
Salary
155.88
Expenses
72.40
Net pay
548.31
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Forgot to add, you will see that by registering for VAT Flat Rate he will be be £24.70 a week better off before tax. For a contractor this makes sense as there are no VAT expenses to offset.
Disclaimer: You're not supposed to set up FRS just to save tax. It is an unintentional benefit that's all.
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
I've gone through it all and decided to turn the work down and send them to someone more experienced with limited companies, I'm a bit scared to be honest as I've never done accounts for a limited company just the bookkeeping. I don't feel like I know enough about it to take it on yet. Hopefully I'll be a bit wiser after business tax on aat level 4.
I've gone through it all and decided to turn the work down and send them to someone more experienced with limited companies, I'm a bit scared to be honest as I've never done accounts for a limited company just the bookkeeping. I don't feel like I know enough about it to take it on yet. Hopefully I'll be a bit wiser after business tax on aat level 4.
Thanks again for your help
Best move that Rachel, although I know its tempting to keep the work.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
John, can I ask where you got the 13.5% flat rate figure vat on your calculation please?
I thought it would have been one of these two?
Labour-only building or construction services* 14.5%
General building or construction services* 9.5%
*Labour-only building or construction services means building services where the value of the materials supplied is less than 10% of the turnover for those services. If more than this amount, the business is classed as General building or construction services.
I deducted 105.30 from £650 to arrive at their nett benefit figure of £544.70, which worked out at 13.5%. As you've suggested labour construction is at 14.5% this would match the 1% discount on the first year.
I've no idea whether he should have been on that rate though. Computer and IT consultancy or data processing matches it. Would that cover a telehandler or is secretarial at 13% or business services not listed elsewhere at 12% a better fit?
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
it's one of those words that makes one think of telephone operators isn't it but in this context a telehandler is a telescopic machine operator so similar treatment to JCB drivers or crane operators.
The registering for VAT is down to it being through a brollie company who will be charging the end client VAT on your services.
HTH,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
it's one of those words that makes one think of telephone operators isn't it but in this context a telehandler is a telescopic machine operator so similar treatment to JCB drivers or crane operators.
Ah, it had me confused as well, I had in mind someone working for Neville Wilshire
Still confused on that £4 PAYE in the first post though
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
