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  1. #1

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    Default Umbrella company monthly take home pay could be more than Limited Company??

    Hi,

    I have read all sorts of info / forums on the pros and cons of Umbrella companies vs Limited Companies.
    I thought I would be "clever" and create a limited company. I've haven't traded yet. Now I'm it looks likely that I will have between 2 to 3 months work at £150 gross a day.

    I thought now was the time to actually use my limited company, now I am not so sure as my take home pay from Parasol would actually be higher!

    Using my Limited Company my tax accountant advised to keep 18% of what I earn available for tax etc.
    Using Limited company £150 x 5 = 750 x 4 = £3000 - £540 = £2460 net

    Using Parasol take home online calc = £2740 net

    The Umbrella company actually looks a lot better, going against what I've read.

    Also I'm not convinced / don't know if I will actually get many contracts until I have some new qualifications /experience or I could just go for permanent again , so I could be spreading my tax accountant fees of £450 across say 3 months pay... that's another £150 off the Limited company net amounts.

    Can any one explain why the umbrella company looks so much better? Some people say that a Ltd company is has no advantage unless you earn £30k , others say £50k.

    Even if I had 3 months pay totaling £9k, was taxed etc on £8k as a salary , took £1k dividend and took off the accountancy fee , the Ltd amount isn't very impressive.

    Additionally , this role could be IR35 - I will be told to be a certain place to do specific IT tasks during specific hours - I'm guessing I would end up paying PAYE anyway?

    Any advise is welcome, I'll need to make a choice soon between using my limited company and paying account fees or just keeping it dormant for £50 fee and not trading.

    Thanks in advance.

  2. #2

    My post count is Majestic

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    Default

    Arghhhhhh! It's ADVICE.. With a bloody C!

    The general consensus is that an umbrella is better if you gross less than 30k a year. The benefits of a ltd won't kick in under that.

    If you are going to earn more than that a LTD is the way to go even if the odd gig is inside. You just account for that gig slightly differently.

    If you are going to dip in and bail then an umbrella is much easier. Only you will know if you have enough experience but the fact you are concerned about it would indicate there is a problem.
    Last edited by northernladuk; 4th November 2015 at 19:18.
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  3. #3
    ASB
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    Default

    Assuming 150/day; 20 days for month, 3 months then

    Made up brolly.

    Gross income = 150 x 20 = 3000
    Less fee 125 (say) = 2875

    Er's NI 266
    Gross salary 2609
    Ee's NI 232
    Tax 345

    Net 2032

    (Adjust by whatever dodgy expenses you feel like, but these should in effect be neutral where they are genuine).

    LTD inside IR35, broadly the same as above. But fees will be higher since there will be a total of around £1,000 in accountancy fees. That's about what it is likely to cost for a year. The fact that you are only working over 3 months is largely irrelevant.

    LTD outside IR35. Again assume annual accountancy bill of £1,000

    Income 3000
    Fees 333

    Salary 675 (no tax ni etc)

    Taxable profit 1992

    CT 399

    Net profit (pay as dividend with no further tax) 1593

    Net yield 2268

    Assuming you only claim genuine claimable expenses etc then you will be a bit better off with the LTD if you are outside IR35 (progressively better if you should do it for a full year since the accountancy bills will not change significantly).

    If you are inside IR35 then it is certainly going to be broadly the same between your co and brolly.

    I have no idea how you get to the 2740 figure from Parasol (well I do, assorted expenses added back, but these may or may not be genuinely ok to claim depending on your circumstances).

    If you are only intending to do this for a few months it is very difficult to see anything other than a brolly as being appropriate (and T+S is not claimable on a single engagement since it cannot possibly be a temporary workplace).

    ContractorUmbrella post a fair amount; they will give you a proper figure based on your circumstances. You probably won't like it but it will not be based on questionable expenses etc.

  4. #4

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    Quote Originally Posted by inbetweener View Post
    Using Parasol take home online calc = £2740 net
    Using the ContractorUmbrella calculator gives a net £2025.58

    Gross income £3000.00
    Employer's NI 269.57
    Employee's NI 234.41
    Employee Tax 356.67
    Total All Tax 860.65
    CU Margin 105.00
    Total Net Income 2,025.58

    So I'd be looking very carefully at how Parasol is giving you so much more than that (91%!!)

    In fact, having run the numbers through Parasol, if you used their Clearsky accounting, you could get up to £2912.66 a month on a gross income of £3000 - a whopping 97% of your gross!

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  5. #5
    ASB
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    Quote Originally Posted by TheFaQQer View Post
    Using the ContractorUmbrella calculator gives a net £2025.58

    Gross income £3000.00
    Employer's NI 269.57
    Employee's NI 234.41
    Employee Tax 356.67
    Total All Tax 860.65
    CU Margin 105.00
    Total Net Income 2,025.58

    So I'd be looking very carefully at how Parasol is giving you so much more than that (91%!!)

    In fact, having run the numbers through Parasol, if you used their Clearsky accounting, you could get up to £2912.66 a month on a gross income of £3000 - a whopping 97% of your gross!

    The major differences are:-

    1. Apples and pears. Their monthly calc is based on 52/12 (ie 3250 gross not 3000). The weekly calc gives 631.74. x 4 to compare the same thing = 2527 not 2744

    2. Arbitrary 317.50 expenses. Given the OP's post I would expect their genuine claimable expenses to be precisely nil. This makes up the difference of course.
    Last edited by ASB; 5th November 2015 at 09:31.

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    I believe I'm right in saying that the calculator the OP refers to assumes an amount of expenses that the OP may or may not be able to claim and this would impact the take home figure - we don't assume anything but allow the contractor to put in their own expenses - that should account for the difference. 90% odd take home is a bit and though - that's avoidance scheme territory!
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  7. #7

    Umbrella Queen

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    Thought I'd seen it somewhere - the umbrella company the OP mentions uses these assumptions in their calculations:

    Assumptions

    Umbrella calculation

    Based on you working 40 hours per week, 2015/16 tax rates, claiming average expenses (for an employee working and staying away from home of £317.50 per week)
    52 weeks per full tax year with the company
    Business mileage calculated at 45p per mile for the first 10,000 miles per annum and at 25p thereafter
    1060L tax code
    You have no earnings from other sources this tax year
    Based on 4.3 weeks per month
    Limited calculation

    Flat Rate Scheme for VAT with first year discount applied (you’ve already selected the appropriate business)
    Assignments not subject to IR35
    Director’s Wage of £7,956 per annum
    Accountancy fees based on the Assure package from our sister company ClearSky Accounting
    Based upon average travel and subsistence claims
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  8. #8

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    Default Thanks for the adviCe

    Apologies for any errors , I wrote my original post in a hurry... I hadn't read the Parasol take home calculator assumptions as they were below the Clearsky quote which I wasn't investigating as I already have a Ltd company created with an available accountant.

    The only expense I'm likely to claim for is business mileage, estimated around 500 miles a month.

    It's starting to look like an Umbrella company is the best option in the short term as I will avoid any further accountancy costs above the my accountant's basic annual £450 fee, although the recruitment company has said that none of their contracts are subject to IR35.

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    Quote Originally Posted by inbetweener View Post
    the recruitment company has said that none of their contracts are subject to IR35.
    Well, they would, wouldn't they!
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  10. #10

    Umbrella Queen

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    Quote Originally Posted by inbetweener View Post
    Apologies for any errors , I wrote my original post in a hurry... I hadn't read the Parasol take home calculator assumptions as they were below the Clearsky quote which I wasn't investigating as I already have a Ltd company created with an available accountant.

    The only expense I'm likely to claim for is business mileage, estimated around 500 miles a month.

    It's starting to look like an Umbrella company is the best option in the short term as I will avoid any further accountancy costs above the my accountant's basic annual £450 fee, although the recruitment company has said that none of their contracts are subject to IR35.
    With IR35, the contract needs to accurately reflect working practices - what's on paper may put you outside IR35 but, if what's written down isn't what you do, it won't be worth anything in the event of an IR35 investigation
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