Take home pay - Limited company or Umbrella company

* - Article from sjdaccountancy.com

We all want to earn as much as we can. Unfortunately G & G Recruitment do not specialise in Limited and Umbrella Companys but, we hope this article from SJD Accountancy can help candidates choose how they work.

The real story.

There is one question we get asked every day, not nearly every day or most days but actually every single day. “How much better off will I be using a limited company over an Umbrella company”

The main savings with a Limited Company over an umbrella are around National Insurance and the flat rate VAT scheme.

With an umbrella company you will pay both employees and employers NI. Employers NI is 12.8% of your salary, and employees NI 11% for the first £770 a week, and 1% thereafter (both after tax free personal allowances).

On a typical contract of say £350 per day you will pay around £300 a week in NI through an umbrella company whereas with your own Limited Company you will pay just £30, so the NI savings alone come to about £12,000 a year assuming a 45 week working year.
If you are a contractor on £200 per day you'll save £9,000 or if on £600 a day save £20,000.
The flat rate scheme is an incentive provided by the government to help simplify taxes and means you charge VAT on your invoices at 17.5% but only pay back the Revenue in your first year 12% of the gross amount and 13% in subsequent years.
This provides the following additional income (based on a 45 week working year):£200 per day contract - £1,530 extra per year£350 per day contract - £3,670 extra per year£600 per day contract - £4,590 extra per year

On top of NI and VAT you'll also earn interest in your savings (savings put aside to pay for your taxes) plus have access to a broader scope of expenses than using an umbrella company.
One way of looking at it is, if you have two contractors both on the same £600 per day. One contractor ‘A’ uses an Umbrella company and another ‘B’ trades through his own limited company the difference after the affect of NI and flat rate VAT scheme are as follow:
A - (umbrella) real value of contract after NI - £115,000B - (Ltd Co) real value of contract after NI and Flat rate VAT - £138,000

An extra £23,000 on the contract value, that’s like billing your clients an 38 days per year.
The above does assume the contractors are outside IR35, if inside you can still claim: travelling and accommodation expenses, 5% of your turnover, benefit from the VAT flat rate scheme and receive interest on the funds held within your own company.
Basically, income tax or corporation tax and personal taxes via an umbrella company or through your own limited company are roughly the same. There are of course more opportunities for tax planning through a Ltd Co but that’s something you can discuss in greater detail with an accountant.

If you would like to know more about working through your own limited company click here, download one of our many FREE to guides, speak to a one of SJD's Client Liaison Managers on 0500 152 500 (01442 232 700) or email mailto:michelle.turbutt@sjdaccountancy.com.
Other useful pages, guides and case studies include:
Take home pay calculator - How much could you be taking homeFirst time Contracting or Freelancing? - A summary of the alternatives along with pros and consStep-by-step Guide to Contracting - Download a FREE copy of our guideLimited or Umbrella? Can't decide? - We help you decide which is bestTake home pay case studies - Examples of contractors using a ltd co. & umbrella co.Umbrella company guide - Everything you ever wanted to know about umbrella company servicesIR35 Guide - A great plain English guide to IR35

SJD Accountancy is the UK's largest specialist provider of fixed fee, limited company accountancy services to contractors and freelancers.

We have been acting for contractors across the UK since 1992, have more than 8,500 clients; are the only national specialist firm of accountants with offices in all major cities; are the most recommended accountancy firm on the internet and have more qualified staff than any other specialist firm with qualifications from the following major tax and accountancy bodies - ATII, ATT, ACCA, CA, ACA, FCCA, ACMA.

SJD Accountancy offers a complete package including: completion of accounts, payroll bureau, dividends, corporation tax computations, personal taxation, free bookkeeping software, unlimited access to your accountant and all company returns for a fixed monthly fee of only £95 plus VAT.

We've have also won every relevant award possible, including: the 'Accountancy Age Award for Excellence' twice, once in 2004 and again in 2007, contractor UK’s 'Best Contractor Accountant', Sunday Times 'Best company to work for'; are a Quality Accountant as recommended by the Professional Contractors Group (PCG) and are recommended by the Sunday Times.