+ Reply to Thread
Posts 1 to 4 of 4
  1. #1

    Banned


    Join Date
    Jan 2013
    Location
    United Kingdom
    Posts
    1
    Thanks (Given)
    0
    Thanks (Received)
    0
    Likes (Given)
    0
    Likes (Received)
    0

    Lightbulb Take home pay - Limited Company or Umbrella Company

    The differences

    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.

    National Insurance Savings

    With an umbrella company you will pay both employees and employers NI (Employers NI is 13.8% of your salary, and employees NI 12% 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 around £9,000 or if on £600 a day save around £20,000.

    Flat Rate VAT Scheme

    The flat rate scheme is an incentive provided by the government to help simplify taxes. For example as an IT Contractor you would charge VAT on your invoices at 20% (2011 rate) but only pay back the Revenue in your first year 13.5% of the gross amount and 14.5% in subsequent years.

    This provides the following additional income (based on a 45 week working year):

    • £200 per day contract - £1,710 extra per year
    • £350 per day contract - £2,992.50 extra per year
    • £600 per day contract - £5,130 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 their 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 is around £115,000
    B - (Ltd Co) real value of contract after NI and Flat rate VAT is around £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.

    I hope this information was helpful.

    Regards,
    Smit

  2. #2

    Some things in Moderation

    cojak's Avatar
    Join Date
    Jul 2005
    Location
    Look to your right...
    Posts
    17,809
    Thanks (Given)
    461
    Thanks (Received)
    949
    Likes (Given)
    4017
    Likes (Received)
    2632

    Default

    Welcome to CUK Smit.

    Who are 'we'? If you are a representative of an umbrella company you may want to change your login to smit@myco.com - Admin can do this for you if you ask him.

  3. #3

    My post count is Majestic

    northernladuk's Avatar
    Join Date
    Mar 2009
    Posts
    32,792
    Thanks (Given)
    132
    Thanks (Received)
    1284
    Likes (Given)
    1680
    Likes (Received)
    5688

    Default

    Looks very similar to our sticky here but useful FRS info. I don't think FRS would be a deciding factor whether to use an LTD or Umbrella though but useful to have in none the less.

    http://forums.contractoruk.com/umbre...composite.html
    'CUK forum personality of 2011' - Winner - Yes really!!!!

  4. #4

    Umbrella Queen

    LisaContractorUmbrella's Avatar
    Join Date
    Jun 2006
    Location
    Colchester
    Posts
    5,373
    Thanks (Given)
    237
    Thanks (Received)
    224
    Likes (Given)
    353
    Likes (Received)
    506

    Default

    Quote Originally Posted by cojak View Post
    Welcome to CUK Smit.

    Who are 'we'? If you are a representative of an accountancy firm you may want to change your login to smit@myco.com - Admin can do this for you if you ask him.
    Connect with me on LinkedIn

    Follow us on Twitter.

    ContractorUK Best Forum Advisor 2015

+ Reply to Thread

Tags for this Thread

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts

Content Relevant URLs by vBSEO 3.6.0 ©2011, Crawlability, Inc.