I have a few friends in London, contracting whilst working a Single Person Business (lacking the proper terminology). Super high wages £500 - £700 per day, whilst having an effective tax rate or 13%. Boom.

Where are you getting 13% from?

If you pay yourself a salary from a ltd company there's ~14% Employers NI, 12%-2% Employee NI Depending on tax band, 20-40% Income tax depending on tax band. If you pay a dividend there's 19% Corporation tax plus 7.5%-32.5% Dividend tax.

So 46%-56% tax on salary and 26.5%-51.5% tax on dividends. Nowhere near 13%, unless you're talking about 'creative accounting' by running non-business expenses through the company to effectively get them tax free.

- create a company in the Man Island - You pay yourself the minimum to have ok life style (dividend allowance + progressive tax could make it somewhere around 15% + NI). You move for a year to Singapore, so you are no longer UK tax resident. You close the company.

I don't live in UK anymore and I could do something similar in my location, but I want to pay taxes and my effective rate is good.

Yeah, by all accounts reading online indicates a 45% tax rate for a sole-trader[1].

I'll have to enquire with the few mates there -- don't see a reason as to why they'd bullshit me. Frankly I have nfi however, apologies for the cop-out of an answer.

1: https://www.highspeedtraining.co.uk/hub/sole-trader-tax/

> I'll have to enquire with the few mates there

Sole traders are different to one-person Ltd companies. As a one-person Ltd, you used to get a lot of tax breaks, but over the last 5-6 years they seem to have been steadily eroded.

Anyone paying a rate as low as 13% now is probably using a borderline-legal grey-area scheme, which is dangerous because HMRC not only hit those folks up for back taxes when they find them, but put fines on top too.

The effective tax rate is closer to 30%+ once you factor in corporation tax but the rest is correct. You incorporate a limited company and take a low salary and rest in dividends.

Though you'll get to higher tax brackets with that pretty quickly too, so will likely want to leave a fair share of revenue in the company (you still need to pay 20% corp tax on profit), or put it into your pension (tax relief on up to £40k/y).

Good to know, thanks on the correction. Didn't get the whole spiel from my mate but that makes sense.

I presume it's because they're contracting? It's the way to cash out in software in the UK, I believe in most companies, contractors get to sidestep the HR/salary budget hierarchy, usually because the company is really desperate, and they tell themselves "they're only temporary, so won't apply salary banding on them"