How to decide which is best for you
As a contractor, you have plenty of options when it comes to your pay. Two of the most popular are contracting through a Limited Company or an Umbrella Company. More information on these can be found below. However there may be something better for your circumstances…
To help you decide what’s best for you, we recommend speaking with one of our tax advisors.
The Benefits of a Limited Company
A contractor Limited Company can be very tax efficient. As a director and shareholder, you can use dividends, VAT, and expenses to significantly reduce your tax.
For example, things like a computer can be purchased through the business, and you can even claim back the VAT.
With a Limited Company you could take home up to 70% of your earnings – depending on circumstances of course.
However, it’s worth bearing in mind that having your own Limited Company won’t always mean you’ll pay less tax. If HMRC decide you’re effectively an employee of your client, you fall under their IR35 rules. In this situation, it may be better for you to use an Umbrella Company.
The Benefits of an Umbrella Company
Umbrella Companies make being self-employed very easy. Essentially, you become an employee of the Umbrella Company and go on their payroll.
They’ll take care of things like deducting tax and National Insurance. All you have to do is submit your weekly or monthly timesheet. Furthermore, they’re generally seen as the safer option too.
However, don’t expect to take home as much as a Limited Company – you’ll still be paying around 35% to 40% tax.
What’s best for you
As we said at the start, you have plenty of options. And these aren’t just Limited or Umbrella Companies.
In fact there are 100% HMRC compliant solutions that enable you to take home up to 90%.
Fill out the form below to find out more.