Mr Happy and Mr Grumpy live next door to each other.
Statement of Assumptions
They commence identical contracts on April 1 2010.
Both contracts are at a rate of £70,000 per annum.
Each of them form their own company to contract through.
They both own all of the shares of their companies.
The only expenses that they can claim tax relief on are accountancy fees of £1,000 net of VAT.
No costs of IR35 insurance or professional costs are taken into account.
The contract is outwith the IR35 rules and he does not apply them.
He operates the VAT flat rate scheme.
He puts £7,000 into a pension.
He has a salary of £10,000 and removes the rest of the profits by dividend.
The contract is outwith the IR35 rules but he does apply IR 35 as he is unsure what to do.
He does not operate the VAT flat rate scheme.
He puts £nil into the pension.
He extracts the maximum salary from the company as per IR35.
He takes the remaining profits as a dividend.
Mr Happy and Mr Grumpy
Year Ending 31st March 2011
The tax saving for Mr Happy is £12,824
|Mr Happy||Mr Grumpy|
|Total Income After All Costs||55,399||42,575|
|Flat Rate Scheme Saving||2,380||0|
|Less: Third Party Costs|
|Income Tax on Salary||705||13,512|
|Higher Rate Tax on Dividends||3,029||494|