Further References & Specific Solutions

• Scenario: Instead of £45,000 PAYE employment, you propose to your employer that you become a contractor through your own limited company. The employer saves on National Insurance, pension, and holiday costs, so you can negotiate a higher rate (e.g. £60,000 contract value)
• Contract terms: A 12-month renewable services agreement. You invoice monthly. To remain “outside IR35,” the contract should specify deliverables not hours, include a right of substitution, require you to provide your own equipment, and avoid mutual obligation for ongoing work.
• Company structure:
  • You pay yourself a small salary (often set at the Personal Allowance level, £12,570) 
  • The rest of the company’s profits are distributed as dividends 
  • The company pays Corporation Tax at 19% on profits up to £50,000 (slightly higher if over) 
  • Dividends are taxed at 8.75% in the basic rate band.
     
• Allowable expenses: 
  • Laptop, phone, software subscriptions 
  • Home-working allowance (£6 per week flat) 
  • Business travel to temporary sites (not regular commuting).
  • Mileage (45p per mile up to 10,000).
  • Pension contributions made by the company, deductible against Corporation Tax.
• Income outcome (approximate):
  • £45,000 PAYE salary → about £35,900 net after tax and NI.
  • £60,000 contract through limited company → about £44,600 net after Corporation Tax, salary, and dividend tax. 
  • Difference: about £8,500 more take-home on the same work, before accounting for expenses and pensions.
• Possible tax saving: The shift can save roughly £7,000–£10,000 per year compared with being an employee on £45,000 PAYE, depending on expenses, pension contributions, and exact dividend levels.
• Additional benefits:
  • Ability to deduct legitimate business costs you already pay personally.
  • Freedom to take on extra clients and scale income beyond the single employer.
  • Flexibility in how you structure income between salary, dividends, and pension.
     

Universal Credit (UC)

• Eligibility: You can claim if you are on a low income or out of work, are under State Pension age, and have less than £16,000 in savings. "Low income" means your earnings aren’t enough to cover living costs – the DWP assesses this each month.
• Payments: A standard monthly allowance (around £400 for a single adult 25+, £628 for a couple 25+) plus extra for children, caring responsibilities, or health conditions.
• Children: Extra money for children, but limited to two children if born after April 2017 (unless an exception applies).
• Housing: UC can cover rent (up to a cap set by your local area) or mortgage interest in limited cases.
• Childcare: UC will refund up to 85% of what you actually pay for childcare, with maximums of about £1,032 for one child or £1,769 for two or more per month.
   

Earnings Rules

• Work allowance: If you have children or a health-related UC element, you can earn a certain amount each month (£411 if you get housing support, £684 if you don’t) before UC starts being reduced.
• Taper: Once you earn above that, UC is reduced by 55p for every £1 you earn. If you have no children or health element, there is no allowance – every £1 of earnings reduces UC by 55p straight away.
• Employer deductions: If you owe money to DWP (like an advance), they can take repayments out of your UC. From April 2025 this is capped at 15% of your standard allowance.
   

Self-Employed

• Minimum Income Floor: After a year of trading, UC assumes you earn at least the equivalent of working full-time on minimum wage, even if you actually earn less. This can reduce or wipe out your UC. In practice, UC doesn’t subsidise a failing business beyond the first 12 months.
   

Sickness and Disability

• Statutory Sick Pay (SSP): Paid by employers for up to 28 weeks if you are too ill to work. Currently £118.75 per week.
• Employment and Support Allowance (ESA): For people too ill to work, if you’ve paid enough National Insurance. Around £92–£141 per week depending on severity. Can be combined with UC.
• Personal Independence Payment (PIP): For people with long-term health problems or disability. Paid regardless of income. Up to about £187 per week depending on care and mobility needs.
• UC Health Element: If your health limits your ability to work, UC can add about £423 per month.
   

Family and Children

• Child Benefit: £26.05 per week for the first child, £17.25 for each additional child. Reduced if either parent earns over £60,000.
• Two-Child Limit: For UC and Child Tax Credit, no extra money is paid for a third or later child born after April 2017 unless an exception applies.
   

Housing and Council Tax

• Housing Benefit: Mostly phased out – only new claims for pensioners or supported housing.
• Council Tax Reduction: Help with council tax bills, means-tested, rules differ by council.
   

Benefit Cap

• Limits: If your household benefits exceed a set amount, UC will be cut. For example, outside London the cap is £423 per week for couples/single parents and £284 per week for single adults.