Hey, that’s really helpful. Thanks Michael!

Hi Julian, the article was updated to reflect the latest dividend tax rates. It might be slightly off due to small salary band changes, but I’d say it is pretty close to today’s numbers.

The $64k question is, as the articles a few years old now, can I still use the assumptions and the numbers in order to make decisions about what daily rates I need to be seeking as a contractor inside IR35?

Thanks,

J.

Hi Mannuel, short answer is it depends on your goals. If keeping Entrepreneur’s relief is important to you then investing a substantial amount might lose this benefit. You have to be more careful how you want to go about it.

See can I claim entrepreneur’s relief if my company invests?

ER also restricts you from operating in the same space for 24 months. That’s the “phoenixing” rule. So if you want to leave your perm job and go back to contracting, that’s another thing to consider.

Having said that, the Entrepreneur’s Relief rules change all the time so it might not be here for long. Just speculating though, but now we definitely know it’s on the table.

Overall, it depends on many different factors, and you have to run different scenarios. It’s a popular question and part of the tax pillar in the company investing course.

I see the benefits if you continue to do contract work outside IR35. Investing surplus funds make total sense especially if you’re being tax efficient.
However with Entrepreneurs Relief on the table I seem to think it flips to the other side.

Asking for a friend ;)

Thoughts?

Hi Martin, both your examples are correct. Goes to show how big of an impact moving inside IR35 has. Plus how much room for tax optimisation company directors have!

Hi @Michael, thanks for your response!

Just to check my understanding is correct: following your example, if I translated a £700 a day outside all out (£98k) that would be equivalent to around £900 a day Inside IR35?

Does the same logic apply to cross referencing between the Outside IR35 Entrepreneurs Relief and Inside IR35? ie a £650 a day at Outside ER (£107k) is equivalent to approximately £1,000 a day Inside IR35?

Glad you found it useful, Martin. I haven’t written the article yet. You can probably estimate that by looking at the last take-home table based on your rate. So for a £500 per day outside IR35 contract (All money out) the equivalent would be ~£650 per day inside IR35.

The more tax-efficient you are with the company money the higher the rate increase to match it. Goes to show why IR35 can be a big showstopper and why it has really killed most of the freelancing job postings!

Did you ever do the followup article covering the necessary increase in rate necessary to maintain the same take-home when moving from outside to inside IR35?

With the revised implementation date for IR35 changes now coming into force in a few months time, it’d be great to see your analysis on this.