I am new to London and am trying to understand income taxation rate here. Someone told me if I go through an umbrella, pay them a fee they will take care of the tax filing for me. Or I can set up a limited company to get better tax savings. I am not make a huge salary here. :( I just want to understand the best way to take care of income tax filing. Thanks for your inputs!

Will you be an employee, or running your own business (perhaps as self-employed)?If the former, your employer will take care of it all for you.If the latter, and you're not making a huge salary, the usual route is to do a tax return at the end of the year. Umbrella companies can help to save money but it's quite a lot of hassle for many people.

Hello Bushy Eyebrow Partner,I will be an employee, so what would my employer do? In the US, certain amount will be taken out from each paycheck as withholding taxes. People still have to file tax returns every year, that's to figure how much they still owe taxes on or if they pay more than they need to, how much they should get back from the government. Is it the same here in London?

Yeah, pretty much the same except most people don't need to do a tax return unless they have spent money on things (maybe pensions) that should be tax deductible. It's pretty simple really

To Bushy Eyebrow Partner,Wow....that's simple here in the UK!!Believe it or not, since I am a US citizen. Even I don't reside in the US, I am required to report the income I make outside the US. I will be taxed on the money I made outside the US. But I will be exempt on the tax I paid to the foreign government, so I won't be double taxed.

There are a number of online tax calculators such as listentotaxman.com that you can plug in a salary to and it will show you the net/gross income/tax/social security breakdown.

Thanks Mr. Cool. You are indeed very cool! :)

Just to add to the above, this year's Budget sees changes to dividend taxation take effect from April 2016 onwards. The tax advantages of having your own company vs. being a salaried employee are almost totally wiped out. So a lot of what you've heard about the advantages of setting yourself up this way for tax purposes I think will shortly be obsolete in any case...Tony

[quote]Just to add to the above, this year's Budget sees changes to dividend taxation take effect from April 2016 onwards. The tax advantages of having your own company vs. being a salaried employee are almost totally wiped out. So a lot of what you've heard about the advantages of setting yourself up this way for tax purposes I think will shortly be obsolete in any case...Tony[/quote]My contractor friends are all trying to get me to sign up to petitions to help "protect small business owners" and reverse the change - needless to say I don't agree!

I'm affected and don't agree with signing but there are still many many reasons to contract if you want flexibility, slightly less office politics, limited or no performance management and most importantly more options on how to spend the fee, etc. It all depends on your own personal goals.

My mate reckons the impact is only 5% to him though, not sure anyone knows the real cost?

To all -Great conversations and great information!! Thank you guys!! :)

Its really not much of a change in net income.In the current tax regime, a contactor charging 215 days a year at £500/£1000 would take home the same net salary as an employee earning £110K/£220 (rough figures). In the new regime the salary equivalents drop to about £98K/£210K. Most contactors on £500 a day could not hope to achieve perm packages of 98K, so are likely to stay as contractors unless there is a significant further change to income tax on dividends.Many contractors on £1000 a day could in my opinion command perm packages of 200K, so the choice is likely to be more around freedom to work, avoid politics and pressure to sell, etc.This is really quite a clever tax change in terms of contractors. It raises quite a bit of extra cash for the country, but is 99% likely not to lead to anyone stopping their activity. They will grumble, but few will stop being contractors.Where it potentially IS UNFAIR is that the tax also hits hard working retirees who have significant dividend income from their investments. Many will find themselves paying 3K more a year in tax - something they did not budget for and now have to absorb.Multi-millionaires will not notice the difference - not just because they are rich - but because they dividend benefit already narrowed to almost nothing once your income is above a few hundred thousand.I don't want to pay any more tax than I need to, but as I continue to haul in 8-10 times the national average wage, and continue to use the same roads, schools, doctors, etc. I really don't complain.Message to other contractors - suck it up....if you really are "running a business" this is all just part of the landscape.

[quote]To Bushy Eyebrow Partner,Wow....that's simple here in the UK!!Believe it or not, since I am a US citizen. Even I don't reside in the US, I am required to report the income I make outside the US. I will be taxed on the money I made outside the US. But I will be exempt on the tax I paid to the foreign government, so I won't be double taxed.[/quote]Be careful. It's somewhat similar in the UK.Am neither domiciled nor habitually resident in the UK (there's new legislation here). If you state that you are happy to be taxed in the UK, this includes worldwide income.

[quote]Its really not much of a change in net income.In the current tax regime, a contactor charging 215 days a year at £500/£1000 would take home the same net salary as an employee earning £110K/£220 (rough figures). In the new regime the salary equivalents drop to about £98K/£210K. Most contactors on £500 a day could not hope to achieve perm packages of 98K, so are likely to stay as contractors unless there is a significant further change to income tax on dividends.Many contractors on £1000 a day could in my opinion command perm packages of 200K, so the choice is likely to be more around freedom to work, avoid politics and pressure to sell, etc.This is really quite a clever tax change in terms of contractors. It raises quite a bit of extra cash for the country, but is 99% likely not to lead to anyone stopping their activity. They will grumble, but few will stop being contractors.Where it potentially IS UNFAIR is that the tax also hits hard working retirees who have significant dividend income from their investments. Many will find themselves paying 3K more a year in tax - something they did not budget for and now have to absorb.Multi-millionaires will not notice the difference - not just because they are rich - but because they dividend benefit already narrowed to almost nothing once your income is above a few hundred thousand.I don't want to pay any more tax than I need to, but as I continue to haul in 8-10 times the national average wage, and continue to use the same roads, schools, doctors, etc. I really don't complain.Message to other contractors - suck it up....if you really are "running a business" this is all just part of the landscape.[/quote]+1How are you, Coolio?