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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4779
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I have been offered a contract role offering 600 per day; To

Customer Question

I have been offered a contract role offering 600 per day; To do so, i will need to open a ltd company. I was hoping to ask a couple of questions.
1) The contract is for only 3months initially; Should i charge VAT on top of the 600gbp per day and if i don't earn over the threshold of 80k, do i need to pay any VAT ? and if not , do i just keep the charged vat in the bank ?
2) I would plan to pay myself salary and then top this up via dividends; As i would be the only employee of the ltd company; what outgoings would i have to pay....employers national insurance / corporation tax/ anything else ?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
The VAT threshold is now 82K. If a business turnover reaches or approaches that level in a year it must be registered for VAT. As far as I can see this level would be breached this level at about 136 days of work at 600 quid a day. If it does register for VAT and charge the [output] tax on its invoices the cash is retained in the bank and settled up with HMRC on a quarterly basis after deducting any input tax suffered.
If you operate through a limited company and pay yourself wages as a director these must be operated under the PAYE regime. Directors are deemed to be employees. The company would pay the employer's element of NI, but pay your wages net of employee's element of NI and Income Tax settling up with HMRC periodically. As you will be well into the 40% tax bracket then your dividends will be grossed up for tax to the higher rate in your personal taxation computation so there is minimal advantage in this save for the NI. Any surplus retained in the company would be subject to Corporation Tax at 20%.
I do hope that I have thrown some light on your proposals.