Train Stories – What Crisis?

This new job of mine in one of Scotland’s biggest,  most well known banks is an insight into the banking crisis and how well paid people still don’t pay what they are due.

There is no shortage of well paid, well dressed, well fed people here,  the staff restaurant takes care of the latter,  to call this a canteen would be an insult.  

It’s the exact opposite of a greasy spoon,  where for example you can select the ingredients and have your own stir-fry made for a few pounds by the in-house chefs.

As for the former 2,   did someone say something about a banking crisis?

It’s not reallty apparent here were most of the staff seem to be content and prosperous.

That may be because most of them are contractors like myself,  their red-lined badges vastly overwhelming the number of actual staff with the blue lines.

Contracting,  most people in staff jobs paying PAYE haven’t heard of it.

Consultants,  yes,  makes you sound like a doctor,  but not in IT or business.    These are knowledge based positions where you take the gamble of going out on a  limb being self-employed to make twice as much money as you would in a staff job.  The risk being that you don’t get the work,  but even if you miss a month or two in a year,  the other 10 months at twice the pay .. Or more .. More than compensates.

If you have the skills or knowledge then why wouldn’t you?

Let me spell it out for you …

In todays job market,  with my skills and experience .. If I could find a suitable staff position,  I’d probably earn 50k if I was lucky.  Then I’d be subject to full tax and NI, ripping me off of 23% and 11% respectively = 36kpa /  £3k per month take home with current personal tax allowance of 10k and  before any other deductions like paying a pension plan or health care.

As a contractor,  I earn double that,  then pay an accountant to work out an advantageous tax regime.  

Advantageous to me that is.

The name of the game is paying as little tax a possible,  because that’s just giving money away.

But you can’t evade paying tax,  that would be illegal so it’s about avoiding what you can.

With a personal tax allowance currently set at generous 10kpa before paying tax,  that’s 10k free money,  but who can live on that?

So you pay yourself a minimal PAYE amount,  just enough that covers your minimum National Insurance contribution to guarantee the state pension and benefits when you’re older and not working.

Minimal NI,  more or less gives you 11% more in your tke home,  but remember you’ve doubled your staritng point too. So effectively 22% more straight off.

The game then is to get what you can out of your “business” without being subject to full PAYE taxation and you certainly don’t want to be paying the higher rate of 40% taxation  unncessarily,  so you always try and remain below that threshold,  currently around 50k.

How do you do this?

Simple answer – an efficient tax regime and claiming expenses.

Claiming Expenses

Moving everything that you can in your normal life you would live as a staff person and pay from your own pocket to a business expense that comes before taxation is applied.

This includes,  mileage,  even although I take the train,  I claim as if I were taking the car,  the train journey is £18pd,  but the car journey is 100 miles, at 45p per mile = £45 per day.

Small stuff?   It all counts.

What about subsistence,   if you’re out of the house for more than 10 hours,  you can claim £10pd in lunches and snacks.

And that’s free money for food you would be paying from your own pocket if you were staff anyway.

No need to collect receipts,  £10pd can be claimed regardless.

If you were staff you’d be paying your lunches and travel from your own pocket and you’d be unable to claim this back in tax,  because you are at your regular place of work.

As a contractor,  you’re not,  so it’s deductible.

Need a new laptop?   Why pay tax on it when you can claim it as a legitmate business expense,   you still pay for it,  but it’s above the line and not out of your own pocket.   After a couple of years this is written off as out-dated technmology.  

It’s the same for household bills,  electricty,  council tax, gas,  broadband, telephone?

Anyone on PAYE can’t claim these expenses but the accountant makes an allowance for them,  something that Hector the tax man won’t question and this comes out as a business expense before you pay tax on it .

You still pay the actual bill on a monthly basis or whatever, but a lot of this only occurs on paper and  gets tallied up by the accountant at the end of the year and comes off the tax that you are due to pay.

Tax Efficiency

So meantime,  you pay yourself a reasonable wage as director dividends,  personally I just spend what I like,  it’s all funny money and doesn’t really matter until the accounts are collated at the end of the year.

The clever part here,  is even after your “legitimate” expenses,  don’t drag more money out of the account than the 50k threshold for the higher rate of tax.

So for the cash spend between the 10k personal allowance and the 50k thresholld,  I pay 20% corporation tax and not the 23% personal tax rate .. Because those earnings are claimed as Director Dividend and are not subject to PAYE except for the amount that goes above the higher tax threshold.

Remember,  there is no 11% NI on this either.  Thats a win right away.

You with me so far?

So let me put this in hard cash terms,  last year,  I earned 100k gross,   claimed 10k PAYE with no tax,  paid minimal NI and around15k in corporation tax,  lived off my expenses and the whatever I drew out of the business to pay that 15k corporation tax.

From that I paid my daughters private school fees of 10k,  a top-notch all expenses cruise for me and the three kdis,  a couple of other holidays, and as many concerts and nights out as I fancied.

And I still retained about 40k in the business as tax paid,  retained profit,  which the business now pays me interest on at bank rates.  

The reason that it gets retained is if I take it,  then its subject to another 20% tax,  the difference between the corporation tax rate and the 40% higher personal tax rate.

Nice money for a rainy day.

Try saving that kind of money on a staff wage,  even if you are paid well.  When everything you pay for you’ve already paid tax on and they then charge you VAT on that money that is already tax paid.  

Which is just a complete rip-off..  

Are you angry?

Well I’m small fry,  I’m relaltively average paid in this game,  my earnings are all through the books,  invoiced, accounted for and I play the rules and pay my bit.

If I was earning cash money that might be a different story.

But If I’m getting away with this,  just think of all the other contractors out there,  those people in the sport, the arts and entertainment who work other tax schemes to mininmise their burden and duty to the common purse,

What about the tax evaders .. or those who have fell foul of high profile avoidance schemes such as Take That or Jimmy Carr,  the latter paying 3% on his millions,  the former being stuffed last year with a tax bill of 30 Million for being part of an tax avoidance scheme which was subsequently deemed as illegal,

No wonder their touring again.

The bottom-line is that the only people who pay their full due on taxation are the people who have to.

The ordinary people,  taxed at source and paying full PAYE and NI with no means to claim operating expenses .. it’s grossly unfair.

But there is a flip-side to this …

Mister or Ms Contractor will tell you that,  they are being paid for their knowledge or specialist skills,  that they are taking a risk in being self-employed with no holiday pay,  no sickness benefits,  no training etc.

But thats all bullshit.

No training is true,  but you’re paid for your knowledge so you’re supposed to already be an expert.  Besides what does a book cost if you need to learn a subject quickly?

Sick pay and holiday pay?   Yes you don’t get these but when you’re daily rate is what most people earn in a week its kind of clutching at straws for a justification.    The truth is their personal services limited company still pays them,  they don’t actually lose out.

Right at this moment I’m sitting looking around my office full of fat contractors / consultants,  over-paid bullshitters in stripey shirts and thinking,  what banking crisis?    

They can afford to pay all these people to piss about with documents and IT for systems that don’t actually exist yet,  that theoretically may help streamline the banks processing.

But then again,  it may not and may well be another IT project which fails miserably and the contractors move on to the next big idea..

Who is paying for that?

Answer – The state = you and me – and these fuckers don’t contribute anything like Joe Bloggs paying his full PAYE.

Yes I’d be angry too.

Only, I”m part of it and taking my cut,  I’ve sold my soul ..

No I fucking haven’t .. my soul is intact because I don’t believe the bullshit and see it as it is,  a fucked up banking system,  propped up by a corrupt government who look after their own and a bunch of overpaid bullshitters not paying their way.

I”m just doing the best I can with the opportunities available and so are they.

But that doesn’t make it right.

I had considered adding in a little of Supertramp,  Crisis What Crisis or Crime Of The Century but a bit late for that!

So staying with the Take That theme since I’m going to see them and Ella Henderson later this week … my favourite song of theirs .. cheesy I know!  🙂

A million tax bills I’ve made up …                                  . 

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5 thoughts on “Train Stories – What Crisis?

  1. Brilliant just brilliant. I will not apologise for my 6 holidays a yr, nice cars and excellent lifestyle. Both my husband & I were Consultants in the UK and loved the flexibility we had. We still get calls now for our knowledge. 😄

    1. Hi Kat,

      That’s what hard work and investing in you’re own abilities does. No need to apologise.

      Personally, I’ve did very well from contracting but it would appear in my current place some people don’t appreciate what they have.

      It doesn’t always sit well with me when people I know work much harder than me for a fraction of what I earn.

      But that’s the world we live in and it would be daft not to take advantage of the opportunities available.

      Six holidays pa!! I thought I was doing well with three! 🙂

      1. We were both Consultants so more revenue for fun times. It was hard to get a signature at the end of the week from the boss who was paid less than you. Everyone has a choice in life lol

      2. Yep agreed that we all have choices.

        Before I went back to university I was in the shipyards and decided it wasn’t for me.

        One of the best decisions I’ve ever made as not only myself but my kids .. And ex-wife 🙂 .. Wouldn’t have the lifestyle we have.

        Can’t emphasise the benefits of education and a work ethic to my kids enough.

      3. Well done you. I’m sure your daughters will be truly grateful for your hard work.

        My husband was a bricklayer decided to get further education and then a degree. He never thought he would be laying bricks in the 80’s and now working on an International Airport managing billion dollar projects. 😄 I came from a trade background too, now armed with 2 degrees, I have had a wonderful life and amazing experiences. 😄

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