When I Contract, I pay MORE tax

by jacksjpt at 12:18 20/12/13 (Letters from Freelancers)

I've seen endless amounts of "expertise" being reported by all these experts. How come none of them have pointed out that when I contract through my business, even if I took the "only pay personal allowance as salary and the rest as divis" tax efficient route, that my business still pays significantly MORE tax - because the VAT my business charges is not reclaimable by my financial services customers!

It's a simple calculation. Take the gross rate my business charges, work out what the customer business and I would pay in taxes if I was their employee (there would be not VAT) at that gross rate; whereas take the most recommended tax efficient setup of paying the 9k-10k as salary and the rest as divis and work out what my business, the customer business and I pay in taxes - including the VAT they have to pay because they don't charge enough to their customers to reclaim it (most financial services to end customers does not have VAT e.g. - you don't get VAT added to your bank charges). It's significantly more tax paid to HMRC. I would be better off, HMRC would get more tax, the financial services business loses out a little in paying more tax but they do that willingly - because they value my company's services sufficiently that they are willing to pay the extra. Yet I never hear this reported. -- jacksjpt Tweet

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