I'm a contractor - get me out of here

It's two months since I started my new job.  On the plus side:  it's closer to home so my mileage/fuel consumption is considerably less, they're paying me a reasonable rate, the job is (finally) keeping me busy and they are really nice people.  It's also very obvious that the Big-Boss-In-Charge-Of-Everything is not an absolute bastard.  There is considerably less stress floating around than in my previous company.  No stress puppies here.

On the downside, I'm a contractor.  I have no job security and I don't really have a role.  I'm picking up the pieces of things that others in the team haven't had time to do.  It took weeks for me to get busy and I don't know how long it will last.  I have also been battling a series of almost-colds - mainly sore throats - for the last six weeks, which makes me paranoid about getting something more serious because the job could evaporate if I got really ill.  (Yes, I have had this year's flu jab.).  At least my company now has money in it.

Yes, I now own a company.  In the UK, you have to contract through a company - either your own or an employment agency's.  It's the law.  Setting up a company is easy and cheap. The Companies House website will guide you through the process and charge you £12 for the privilege.  (We used to charge £200 for a company when I was in practice.)  Registering the company for corporation tax can be done at the same time.  Even registering the company for payroll taxes is a piece of cake (although I'm still waiting - a month later - for the payment docs so that I can actually pay said taxes).  HMRC even offer free payroll software that reports your numbers automatically to them.  

Setting up a company bank account, on the other hand was a a palaver that I would never want to relive.  It took over a month.  And that was to open an account at a bank with which I have had a 25 year relationship.  (I even own their shares!)   In the old days, you'd rock up to the bank with your company's Certificate of Registration, some ID, have an interview with the manager and that'd be it.  These days, everything is handled  online and by a call centre.  Nowhere on the paperwork is anything that asks you about your prior relationship with the bank; as a result, I had to prove my identity and my residency status twice.  To do that, I had to go into a branch and get them to photocopy my docs before they send them off via their internal post - a process that surprised at least one branch employee.  Why the hell they couldn't just do the vetting and the forms in the first place is beyond me.  It would have saved so much time and effort.

I finally got the bank account set up in time to pay myself my first salary at the end of October, and I'll pay myself again next week.  The payroll docs situation is equally frustrating, because I'm currently relying on guesstimating how much my take home pay should be, with a bit of help from the folks at https://listentotaxman.com .  Included in my calculations is an employee contribution to a pension fund* that equals what I paid in my old job and I'd like to bring that up to £1,000 a month, with the employer's contributions, but until I can run a draft payroll and test everything, I won't know for certain whether that is too much.  As well has having enough left over to actually pay the Taxman, I have to leave sufficient cash in the company to pay myself holiday pay and sick leave (if necessary).  And, of course, keep paying me after the job ends. Yes,  I can't claim unemployment benefits if the job ends, because I'm still an employee of my company.  (Grrr..... I can only go "on the dole" if the company winds up.).

The other reason I'm undecided about whether I like being a contractor is IR35.  IR35 is the Inland Revenue regulation governing "personal service companies" like mine.  The basic principle behind it is that directors of these companies are effectively employees of the companies with which they have a contract so, therefore, they should pay payroll taxes to the same level as if they were directly employed, instead of paying out their earnings via dividends at much lower taxes.  This is my first close contact with IR35 -  it was implemented in the year 2000, so post-dates my time working in the contractor unit at SL.  (Twenty years ago,  I spent a year doing the VAT and accounts for 300-odd computer and engineering contractors.  This was my first job as a trainee accountant.).   I think the rules are quite straightforward but, we'll see if I get tripped up.

In the meantime, I must be the only person in the country who is looking forward to a letter from the Taxman.  Come on HMRC.

- Pam








* UK equivalent of an American 401K or Australian Superannuation.

Thank you Hector

In case you've never seen him before, here is Hector the Tax Inspector, the image of HM Revenue and Customs. 



Although I think Hector has never uttered it, he is permanently associated in my mind with a catch-phrase from earlier tax-self-assessment ads, "Tax doesn't have to be taxing"...

So... Why am I introducing you to Hector?  This afternoon, I broke the procrastinator's habit of a lifetime and completed and submitted electronically my 2013/2014* tax return**, over six months before the due date (31 January 2015).  Thanks to several midnight dramas while I was in Australia at Christmas, Hector tellls me I'm due a refund, having paid too much tax in advance via my tax code***. 

What happened at Christmas?  You may remember that I rent out my flat (we didn't sell it when we bought this house 11 years ago).  Well, I don't think I ever told you about being 13,000 miles away and having to replace the boiler when it broke just before Christmas.  Nor do I think I told you about being woken up at 3am Australian time on Christmas Day (!) by a phone call from the tenant downstairs, when water was cascading through her bathroom ceiling four days after the new boiler was installed and frantically trying to get hold of the rental agents on Christmas Eve UK time.  (Thank God I had their mobile numbers.)

Anyway, I knew that the costs would have a knock on effect on this year's tax and had been eagerly collecting the relevant paperwork****.  For once, I wanted to get my tax returned filed as soon as possible.  This afternoon, with DH out of the house and the Wimbledon final on the telly, I sat down to do the necessary.... And got a pleasant surprise.  Just between you and I, it never occured to me that I might be due a refund for the last tax year - shocking, I know for an ex-tax professional - but because I pay estimated-in-advance-tax on my rental income via my tax code, I was hoping it would increase for this year and, with it, my monthly take-home pay*****.

The question now is what to do with the refund.  While, it's not an earth-shattering amount - several hundred Pounds not several thousand - I don't want to fritter it away.  Since I spent a large proportion of my "F-You Boss" money on rebuilding the kitchen, I think I'll put the refund into my cash ISA to boost that up.

- Pam


* The British tax year runs April to March.

** Not everyone in the UK has to file a tax return.  If you're a basic rate tax payer and only have employment income, chances are you will never have to file one. You'll pay all your tax via the PAYE system (pay-as-you-earn).

*** Every UK employee has a tax code, which tells their employer how much of their salary should be tax free.  For most people, it is their tax-free personal allowance (currently £10,000 per annum), but if you fill out a tax return, you can elect to pay any tax owed via your tax code.  Additionally, since our tax system requires payments-on-account if you've got rental income or self-employment income above a certain level, if  you're also an employee then you can opt to pay that via your tax code, which is what I do.

**** My P60 arrived promptly in April, but my P11D (benefits in kind statement) seemed to take forever and only arrived on Wednesday.  (The deadline for issuing them to employees was today.)    A P60 is the equivalent of an Australian "Group Certificate" or an American W2.

***** I am still expecting that to happen, but only by £10-£20/month because the 2014/2015 tax year estimate will be based on this latest tax return.