Brian Colborne Page 1 Contractor Tax Solutions How to Increase your Profits and Maximise your Income as a Contractor. Contractors Strategy Guide.. by (Brian Colborne /Contractor Tax Solutions) http://www.contractortaxsolutions.com © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 2 Contractor Tax Solutions Summary T his whitepaper /strategy guide for contractors provides a complete roadmap for contractors seeking to maximise their profits and get an excellent return on investment from their efforts. By explaining how to go about minimising overheads and costs and by eliminating all unnecessary tax burdens. 1) it provides a clear step by step template on how to go about improving your income. 2) It discusses the only 3 ways to lower your tax bill and thus improve the amount you take home, these are the only 3 different roadmaps available and we show you how to implement each strategy 3) We will help you choose the best tax geared implementation strategy for you and your specific situation. 4) How to improve your efficiency and productivity immediately, this not so secret method frees 80% of your resources and helps you focus like a laser beam on what works to bring you the money.(The 80/20 Rule) 5) How to prioritise your day 6) Or if you prefer to free up your time and administration burden then we show you how to get others to implement the best strategy for you. 7) Whether the best option is a LTD co, Paye umbrella or Offshore Trust the various merits and risks associated with each and which solution applies to you. 8) how you can get others to do your tax return for you for free.. There are only 3 ways to improve your income: Increase the number of customers(clients) you have(more jobs) Increase the amount you get paid you for your services.. Or lower or remove things that chew into your income. of the three 3 is the fastest way to improve your income almost overnight. © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 3 Contractor Tax Solutions Are you being overtaxed? Or are you paying more tax than you have to? how you can increase your profit and income even in a downward economy. W hether you think the government is misspending your tax money or not, or overtaxing you -and whether the economic downturn is affecting you or not.. One thing is certain,you probably would like to enjoy a greater income, and would like it with the least amount of hassle or effort and.. 3 Ways You Can Improve Your Income. There are only 3 different ways to improve your income , 1- improve the number of jobs or clients you have. 2- Increase the price your clients pay for your services. 3- Reduce your costs and overheads. Increasing the number of clients, ( I will exclude this as its impractical unless you can clone yourself, this is a very limited option - unless you plan to take on staff. . Increasing the price of your services, this can be increased by a combo of upskilling in highly sought after areas (ie SAP) that are financially rewarded or by improving your personal marketing skills, presentation, confidence and interview skills. i.e. if you can stand out as being highly competent and valuable and you prove this with your thought word and deed, you will be rewarded financially. nevertheless this can be a medium to high difficulty endeavour and certainly is not something you can implement overnight.(but worthy of putting effort in nonetheless as it can yield long term benefits. Reducing your costs, taxes and overheads(this is where the money is), I believe one of the best areas for our attention is to focus on reducing our tax bill and to do what we can right away as it can give the biggest and quickest boost to our immediate income. Reducing your taxes has the benefit of providing the quickest and most effective impact on your earning potential with the least effort and burden when done right. (you can see a jump of 40%) How do we come to this conclusion? well have a look.. © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 4 Contractor Tax Solutions How to use The 80/20 Rule? Roughly 80% of your outcomes come from 20% of your inputs. 20% of your activities produce 80% of your financial rewards there are probably a handful of activities you do each week that produce your income. Occams law: "The solution requiring the fewest assumptions and least complication is most likely to be correct." When you focus on what you can do right now - that will bring you the greatest rewards, this is the shortest path to your success.. Use the 80/20 Rule The good old 80/20 rule: the top 20% of things you do, provide 80% of the benefit.. You should apply this to any activitiy or prioritisation process when faced with a number of activities or tasks. Which one provides me the most value? applying this rule will greatly optimise your efficiency and effectiveness, because it will free up 80% of your time that is wasted on trivial or unproductive matters - by this i mean the activities that give you the most money or return on investment. a good example is in business, 20% of your customers/clients provide 80% of your income - so applying this rule you would then spend more time on that 20% and less on the 80% time wasters or less valuable customers. How to use the 80/20 Rule: • make a list of all the things you have to do. • prioritise according to the ABCDE method below. ABCDE Method (I learnt this from Brian Tracey) © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 5 Contractor Tax Solutions Place letter next to each item • A: task you must complete, very important, major positive/negative consequences (rank many A items with A-1, etc.) • B: task you should complete, mild consequences • C: task is optional, would like to do but no consequences attached • D: task can be delegated, do so ASAP • E: task can be eliminated without any real difference Never do a B task when an A task is left incomplete Begin Immediately and Persist Until the Task is Complete(there is magic in starting and momentum!) 1. 2. 3. 4. 5. 6. Once you know the highest-value task, everything else is a relative waste of time Take action on the most important task first thing every morning Once you start, keep working to full completion (task switching costs are a major time sink) Notice if you are becoming distracted by conversation or low-value activity Most identifiable sign of high-performing people is actionorientation, they are in a hurry to complete key tasks Urgency will generate action instead of discussion: focusing on specific steps, concentrating on results *I will repeat this section in the Peak Performance Toolkit for ease of reference Reducing costs can be as effective as claiming back your expenses, using less petrol, cooking your own meals beforehand etc, but let's face it when applying the 80/20 nothing beats reducing your taxes for an immediate jump in your income. [Compare paye/umbrella/ltd/offshore]-take home You are probably being taxed too much especially if you are a high earning individual in the IT /Contracting /Financial or management world. contractors should be aware of the following problems: © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne • • • Page 6 Contractor Tax Solutions this is a huge problem for UK contractors who are taxed almost 41% of their income with what is acknowledged as one of the most complicated tax systems in the world. If you earn bonuses it gets taxed at close onto 60%(so much for working harder and being rewarded) if you are a high net worth individual through all your devotion in perfecting the skills, qualifications or experience - you are not rewarded but penalised for this. Despite all this there is hope, because as I said above we will present the correct solutions to every tax scenario, which means you can find the right fit and enjoy the best tax gearing available to your situation. The Traditional Solutions to the Problem of Income In most companies or businesses the owners focus exclusively on getting more clients or customers, but as contractors this is normally not an option, so this leaves us to focus on improving our level of service and perceived value due to upskilling and having valuable skills (education)with relevant experience or improving our presentation skills to increase our perceived value through issues such as image projection, skills at interviewing, confidence level, and some say even looks! now none of this is attainable on the short term, but should definitely be attended to, you should plan out your future skill set by beginning to focus on where you want to be, and ask yourselves the right questions: Career and profit orientated questions: 1) what do i love to do and am passionate about in my industry that pays well 2) how much time can I spend educating myself in this area. 3) What action steps can I take to implement upskilling in this area. 4) how can I increase my confidence in interviews (see circles of excellence) That leaves us with the only option being optimising our costs and tax efficiency There are a number of strategies commonly used to manage tax and costs and it depends on your personal situation as to which one is best suited for you I will display a summary which will help you decide according to your needs © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 7 Contractor Tax Solutions Which Solution is For You? The main traditional methods of tax gearing have been umbrella companies and limited companies and in the past managed service companies. Umbrella(PAYE) Limited Offshore Trust Cons Subject to full PAYE Tax, NI and fees Cons Not suitable for small contracts less than ₤25K per year Involves heavy paperwork every month(self administration) Subject to IR35 Laws, you are at risk of being challenged and if you lose you have to pay back a lot of money PROS Medium tax efficiency Cons Not suitable to small contracts Monthly Admin Fees even when you are not contracting.. Very Poor Return on investment. PROS Very little administration (most of this is handled for you) Can claim more expenses Can claim VAT Depending on compliance of structure involved can potentially be challenged by HMRC PROS Most advantageous tax gearing(best Return on investment) Can claim all expenses except vat Almost no admin/self assessment is done for you © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 8 Contractor Tax Solutions Umbrella Companies: IR35 has made umbrella companies effectively Pay As you Earn and aside from reducing your administrative burden and time, and doing your taxes for you- there is little in terms of tax gearing , most contractors caught inside ir35 will have to use this method. Limited companies, These provide better tax gearing but unless you hire an accountant (which is increasing your overheads and your costs- reducing your profit and income) , you have to do your own tax and vat returns which is a bit of hard work. (ask anyone doing it how much of a ball ache it is) © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 9 Contractor Tax Solutions but you will see more money and less tax, you can claim expenses too(see the back of this guide for a list of expenses you can claim) There is also a risk of being challenged on grounds of ir35 which means you need to ensure your working arrangements and contract are well set out and you have implemented all the anti ir35 clauses and contract arrangements. If you get challenged and lose you could end up having to pay a lot of money back to the tax man. Offshore trust/umbrella arrangements (Best return on investment) This is probably the most underutilised form of tax gearing , despite the fact that it consistently outperforms all other forms of tax gearing and significantly so! Part of the answer lies in that it is also risky(but actually less risky than IR35 challenges, so the argument by LTD co proponents falls flat in this regard) another reason people don't go for it is that some people are ultra conservative and are happy to plod along earning 40% less than they are capable. note: there is nothing at all wrong with this, some people are just more comfortable in a zero risk situation, if this is you, be comforted and accept this is how you are. And then there is the mindset that is resistant to change or exploration of the new, but that is not for you: oh no, you are an enterprising entrepreneurindependent and willing to do what is necessary within reason to acquire maximum wealth for you and your family. Otherwise why would you be reading this? © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 10 Contractor Tax Solutions Typically a offshore trust can offer anything from 80% - to 87% take home pay... aside from this the benefits are the same as working with an umbrella company as you have almost no admin to do, other than a self assessment at the end of the year.(but many of these companies offer to cover the cost by having an accountant do this for you.) TIP: Steer clear of people offering over 87% as they are generally not telling you all there is to hear eg:that out of the 90% they use to attract your attention, you need to pay your own NI contributions, effectively taking it down to 87%.. Personally I refuse to do business with people who use unethical marketing and bait and switch tactics.. Having seen the pros and cons of the various solution the next step is deciding what action to take... and then doing it immediately. The one consistent predictor of success is the speed of taking action. • • • • So what kind of gearing do you want? Do you want maximum return on investment? Choose Offshore... Are you stuck inside IR35? choose an umbrella company. Limited companies are being increasingly targeted by HMRC, so unless you are with an agency that insists you run a LTD company (to avoid their own risk of AWR regulations.. then I would avoid this solution - its just too much hassle for too little reward, especially since you still have the potential of getting an IR35 Challenge! so in my mind its actually less risky to go with a reputable and well established offshore trust company arrangement. No Admin:(getting your tax return done FOR YOU) © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 11 Contractor Tax Solutions With the offshore solution you can get almost all administration done for you such as your yearly assessment if you choose one of the reputable solution providers • Your claims can be done at the time of self assessment by the solution provider. My Suggestion: My Preference is Steed Solutions - not only because I work for them but because they have a proven track record and have been around since 2004 Before joining Steed, I checked out several of steeds competitors, I chose to work with them because 1) I have a close friend who works there and I know and trust him implicitly(we met and became mates after college) 2) I in addition, I know and have worked for companies before • they are also one of the only offshore companies that is regulated by the financial services commission • they are also large enough to have sufficient resources to protect their contractors. • friendly no BS staff who just tell you the truth and not what you want to hear. • loads of satisfied contractors. PEAK PERFORMANCE TOOLKIT 1. Circles of Excellence: This tip will show you how to get yourself to be © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 12 Contractor Tax Solutions confident and efficient (in the zone excellent for meetings , negotiations or interviews.) 2. Organisation - Using the ABCDE method to prioritise your life and tasks - making you 70% more effective than your colleagues.. 3. Planning effectively the 7 step method summary(from Brian Tracey brilliant!) CIRCLES OF EXCELLENCE - AN NLP TOOL TO BOOST CONFIDENCE AND PERFORMANCE IN INTERVIEWS One of the methods you can use to summon up your confidence in a crisis is a mental technique from NLP (neurolinguistic programming) called the "Circle of Excellence." It doesn't actually create competence in a skill you desire. Rather, it assumes ability in its place so it gives you the ability to summon up the confidence for performing a skill. For instance, you can use this to get rid of the fear of speaking when you have to give a talk, or boost your confidence for sports or other high performance needs. Here are the steps for using the Circle of Excellence, which you need to practice ahead of time in order to be able to draw upon it at will: Step 1. Imagine an invisible circle on the floor. In your imagination, make it about 3 feet in diameter and 2 feet in front of you, something large enough to walk into. You can draw chalk on the floor if you like when you are first training to master this mental technique. Step 2. Go inside the circle and imagine a time you were wonderful at what © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 13 Contractor Tax Solutions you want to be doing. Imagine that everything went smoothly, you were bright, funny, happy, confident, full of energy and a great success at your task. You were balanced, creative, powerful or any other positive state of your choice where you were balanced and centered. You want all your energy to come up and flood your body with the good feelings of confident performance. Now if you don't have this particular personal history, just pretend you have this personal history. In your mind, you can use visualization to even stepinto-the-shoes-of role playing of a movie hero, a living legend, or anyone you admire to get into that state you want. Your brain cannot tell the difference between a REAL history and an IMAGINED history or the history of others, so all you have to do is emotionally capture that feeling of excellence using whatever role models or scenario playing that works for you. An outside observer should actually see physical, noticeable changes in your breathing and posture when you've got it, otherwise the resource state you're trying to access is either being poorly accessed or is of too low quality. That means keep practicing until "you've got it" and it "clicks." Step 3. Develop a full visual, auditory, kinesthetic representation of the state. Use all your sense to actually FEEL what it's like to be in that state. See yourself in the circle being wonderful. Visualize it fully. Feel the greatness and calm. Feel the fullness of chi. When you have added enough resources, step automatically into the powerful state you've created within the circle. As soon as you step into the circle, imagine it's as if you step into that person, that set of states, that set of superpower being. Step 4. Move into the circle of excellence. Step into the picture of yourself. Anchor this as a resource state so that you can bring it up at any time you require it. In other words, figure out how to draw upon this state at will by practicing it, and then associating some mental cue with its bringing forth. That might be tapping your fingers, holding your arms in a certain way or whatever. © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 14 Contractor Tax Solutions THE ABCDE METHOD ABCDE Method (I learnt this from Brian Tracey) note: this comes from Brian's series on clarity - if you have gained value from this strategy guide and feel like sending me some commission by way of thanks then please click the affiliate link ps even if you think you have not gained value, please check out the non affiliate link regardless, it will GREATLY Improve your life, focus and productivity.(and I'm not all about the money! - I really would like you to have a better life.) affiliate link: The Power of Clarity non affiliate link: The Power of Clarity (The Best Software-Notepad and pencil)Note: I have found personally after experimenting with many free and paid task list software, that the best software is a pen or pencil and paper! - try this and you will notice a difference, there is a magic in bringing thoughts out of 'virtual reality' into physical reality - by writing them down physically as opposed to typing into a computer... • A: task you must complete, very important, major positive/negative consequences (rank many A items with A-1, etc.) • B: task you should complete, mild consequences • C: task is optional, would like to do but no consequences attached • D: task can be delegated, do so ASAP • E: task can be eliminated without any real difference Never do a B task when an A task is left incomplete Begin Immediately and Persist Until the Task is Complete(there is magic in starting and momentum!) © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 15 Contractor Tax Solutions (contined.. 1. Once you know the highest-value task, everything else is a relative waste of time 2. Take action on the most important task first thing every morning 3. Once you start, keep working to full completion (task switching costs are a major time sink) 4. Notice if you are becoming distracted by conversation or low-value activity 5. Most identifiable sign of high-performing people is actionorientation, they are in a hurry to complete key tasks 6. Urgency will generate action instead of discussion: focusing on specific steps, concentrating on results The 7 Step Method 1. 2. 3. 4. 5. 6. 7. Decide exactly what you want Write it down - thinking on paper is critical Set a deadline on your goal List the steps necessary for achievement Organize the list into a plan (priority and sequence, visual layout) Take action on your plan immediately Do something every day to move closer to that goal TIP: When you write your goal, write it as if its already been achieved, not as I want X rather I have X - there is a subconscious psychological reason for this, Im not going into it here as this will take the form of a self help book if I carry on! © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 16 Contractor Tax Solutions © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved. Brian Colborne Page 17 Contractor Tax Solutions © 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved.
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