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
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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
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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
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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
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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
•
•
•
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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
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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
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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
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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
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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
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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
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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
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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.
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Brian Colborne
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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
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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
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© 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved.
Brian Colborne
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© 2012 Brian Colborne & Contractor Tax Solutions http://www.contractortaxsolutions.com All Rights Reserved.