LTD using PAYE vs Umberalla PAYE

[MobileCheese]

Should I be taken home more via a LTD inside IR35 so PAYE than an Umberalla using PAYE ie Parasol ? From what Ive read on the forum via ltd I should make more ny figures from Parasol show I would get more with them though

The 5% allowance you get if LTD and going PAYE, do you actually have to have expenses upto the 5% or is it just 5% relief period ie I dont actually have to spend 5% of my revenue on expenses ?

Finally if full ltd PAYE can I still charge VAT ?

[malvolio]

Why don't you read the post at the top of this forum about the differences between umbrellas and LtdCos (the clue is in th title...)? Then you can ask questions about the bits you don't understand...

And the quick answer is a limited will take home more than an umbrella. Which is bloody obvious if you think about it.

[gravesendboy]

Obvious?

Perhaps you can given an answer on why ltd can take more home than an unmbrella
When I phoned the so called 'top contractor accountants' with figures for my new contract they all suggested that the umbrella is a better option than an limited( I presume you are referring to contractors inside IR 35 being better off as well with a limited co)

[malvolio]

It's not really that difficult. Simon Dolan explains it perfectly well at the top of the page, but since you can't be bothered to read it for yoursel, here is the short version.

Nobody gets any different rules for what you can claim as expenses, tax deductible costs or anything else. So if you are inside IR35, you take 5% off your gross after certain allowable expenses and pay PAYE and NICs on the rest. Do it through an umbrella and you do exactly the same thing AND pay the umbrella a percentage for doing nothing you can't manage for yourself. So, other than by claiming for things you are not entitled to, how can you take more out of an umbrella than you can out of your own company?

BTW, the umbrella is trying to sell you an unnecessary service, so it doesn't really help the sales pitch if it tells the whole truth so they are not really the best people to ask. And fiddling expenses is illegal, but will potentially land you in jail not the umbrella - so they could care less as long as they get their commision.

Understand now?

[IR35 Avoider]

If you are IR35 caught, then you have to pay 95% of your fees as salary, Employers NI, Pension and employee expenses. If you are with an umbrella, they can't pay you dividends, so 100% has to be paid out on those four items.

If you run your own company, you should be able to make a profit of a few hundred pounds per year from the flat-rate VAT scheme, which will offset your accountancy fees and could make running a company actually cheaper than using an umbrella.

There's no need to compare calculations: all you need to know is that the only financial differences are in favour of the own-company route. If you see something else it's just because one of the calculations is wrong or has different assumptions (e.g. about expenses) built in.

The financial differences are so slight that it might be worth going down the umbrella route, just for the minor reduction in hassle.

If I were starting again I would still choose the own company route, because even while being IR35-caught I benefit from the extra control; I can pay bigger pension contributions than the umbrellas are happy to do (even though we are both governed by the same rules) and I can choose where to have my pension instead of having to use their provider. (Pension contributions are more tax efficient if paid by the company, so don't let the umbrella salesman tell you you are free to pay personal contributions to your own provider.)

[gravesendboy]

% Difference

Thanks for your input

I would'nt go down the umbrella route as I have been a contractor for far too long and I have a good accountant who provides me with what I need
As far as projections are concerned about my take home and without fiddling any expenses , I was told and sent by email figures which indicated I would be better off by about 7 % under an umbrella
If my memory serves me right , under an umbrella it was about 70 % and under a limited 63% take home

[malvolio]

OK, so we're all wrong then. Can you show how the extra 7% is made up by the umbrella? And just to make it more of a challenge, do not use the word "expenses"...

[LisaContractorUmbrella]

Calculators

You have to make sure when you are using online calculators that you are comparing like with like; not all will ask you for a figure for your expenses but will make an assumption and this will distort the totals. You should also bear in mind that the only difference in your earnings from one umbrella company to another will be their fees. If you are inside IR35 you will pay income tax, employee's NI and employer's NI and these are all calculated according to Inland Revenue regulations. The expenses that you are permitted to claim are also dicatated by the Inland Revenue. In effect it is impossible to legally 'earn' more through one umbrella company than another.

[gravesendboy]

Wrong?

I think you are missing my point.. I have a couple of calculations showing me to be better off ( these were not an online calculation but a bespoke calculation)
Now as I am not an accountant and nor am I able to break their password to see the breakdown , I cannot tell you where the 7 % comes from
Now as malvolio suggests with certainty that limiteds are better , perhaps he can elaborate further
Even with the 5% limiteds get , the dispensation for being out of the house for a certain number of hours far outweighs this and this does not have to be receipted

[Lucifer Box]

the dispensation for being out of the house for a certain number of hours far outweighs this and this does not have to be receipted

Oh dear.

Someone else who thinks you can claim for expenses that have not been incurred. My friend, pursue this line no further. It will only land you in hot water with HMRC if you do. The dispensation is for the umbrella, not for you.