£450/day IT contract for 3 months. Umbrella or limited company?

[diseasex]

I'm thinking on the basis of being within IR35 and not paying yourself dividends here, but I know nobody really does that...

"Hey i just saw this ad for 450£, how much would i get if i had it?"

[TheFaQQer]

I'm thinking on the basis of being within IR35 and not paying yourself dividends here, but I know nobody really does that...

If you're comparing running a limited company, but being inside IR35 and paying everything out via salary then the difference isn't going to be much, but you'd still be better off running your own limited company if you want to do that.

If you're comparing a contract that would be outside IR35, then for some contracts (nearly all of mine) then the tax relief on valid business expenses would be significant, even if I then paid out the rest of the company profit as PAYE.

Either way at that rate, it's a no brainer which one to choose.

[seanraaron]

Someday. I think if I start getting more limited-term project work that feels like consultancy I'll go the limited company route. At least I don't feel like I need to run screaming from the umbrellas now!

[Mincepie]

Struggle with the basics = Umbrella (for a time)
Willing to put the effort in and learn = LTD

Don't forget you can go umbrella just for the first gig while you find your feet. The difference in income for that three months compared to the rest of your contracting career getting it right is miniscule.

I wish i went brolly first gig or two, would have saved me making a mess of my LTD accounts that took ages to recover from!

[LisaContractorUmbrella]

Monthly

Company Income 9,000.00
Expenses 0.00

Calculate

Employer's NI 996.74
Employee's NI 430.49
Employee Tax 2,295.39
Total All Tax 3,722.62
CU Margin 108.50
Total Net Income 5,170.38

The above figures are based on £450 per day for 20 days per month with zero expenses and assuming that you are on a standard tax code.

If you work through a Ltd Co the tax home will be a little higher if you are inside IR35 and a lot higher if you are outside IR35.

If you want an easy life then try umbrella for a few months to see how you get on; you always have the option to set up a Ltd co after a few months if you find that you like the contracting lifestyle. If you set up a Ltd Co from the getgo then make sure you get a good accountant that understands the contracting world and do plenty of research so that you have a complete understanding of your responsibilities as a Company Director.

[TheFaQQer]

If the role is going to be outside IR35 and incur travel and subsistence expenses, then I would look very carefully at whether it is worth using an umbrella company any more.

From April 2017, I'd look even more carefully at what the fees are likely to be and whether some umbrella companies will be able to stay the course with their additional costs.

Working through a limited company offers two additional protections that are often missed - firstly, there is one less person in the chain to disappear with your money; secondly, there is one less person in the chain so if things go wrong your company can take action rather than you needing your employer to do it for you.

[LisaContractorUmbrella]

If the role is going to be outside IR35 and incur travel and subsistence expenses, then I would look very carefully at whether it is worth using an umbrella company any more.

From April 2017, I'd look even more carefully at what the fees are likely to be and whether some umbrella companies will be able to stay the course with their additional costs.

Working through a limited company offers two additional protections that are often missed - firstly, there is one less person in the chain to disappear with your money; secondly, there is one less person in the chain so if things go wrong your company can take action rather than you needing your employer to do it for you.

The primary consideration for using an umbrella company is not always take home pay There are pro's and con's for using umbrella and for using Ltd - yes there is a risk that the brolly could go bust taking your money with them but the chances are very slim indeed if you use a reputable company but, on the plus side you get certain benefits that you wouldn't with a Ltd such as SSP and SMP. If your only consideration is take home pay and you're outside IR35 then a Ltd Co is a no brainer, I agree but that's not everyone's situation

[DallasDad]

There is another option if the OP has a decent war chest or other existing source of income from swmbo for example.

Use a reputable umbrella offering a decent pension scheme
Put as much as poss (even 100% less the umbrella margin) in the scheme - No tax or NI on those contributions, well not immediately anyway
Bearing in mind there is a £40k annual pension pot cap so £450 a day will soon exceed that if you get an extension of three but by then you should have had plenty of time to consider your options

That is what I am presently doing whilst I get the hang of this contracting lark, and that also negates me having to ponder whether I go PSC for now.......... I think or am I missing something obvious here?

I am over 55 so am actively building up my pension pot with a view to drawing on it in the not too distant future.
Even if the investment in the scheme doesn't achieve a particularly high yield I think it would have to fail miserably to equal losing circa 50% to the tax man via paye

[ASB]

Monthly

Company Income 9,000.00
Expenses 0.00

Calculate

Employer's NI 996.74
Employee's NI 430.49
Employee Tax 2,295.39
Total All Tax 3,722.62
CU Margin 108.50
Total Net Income 5,170.38

The above figures are based on £450 per day for 20 days per month with zero expenses and assuming that you are on a standard tax code.

If you work through a Ltd Co the tax home will be a little higher if you are inside IR35 and a lot higher if you are outside IR35.

If you want an easy life then try umbrella for a few months to see how you get on; you always have the option to set up a Ltd co after a few months if you find that you like the contracting lifestyle. If you set up a Ltd Co from the getgo then make sure you get a good accountant that understands the contracting world and do plenty of research so that you have a complete understanding of your responsibilities as a Company Director.

Lisa, I have generally maintained that inside ir35 and starting out may as well go brolly. There may be reasons not to if brolly cant be as flexible as you want with it pension route. If already have the co established then perhaps that changes.

but, on your calculator or website it might be worth putting up the calc for next years with the divi tax.

in my view itis clise enough for some people who just want an easy life to still go the brolly route with the more limited difference in the new regime.

I did a calc on my understanding of it based on 100k. If you are billing that much it worked out at about 90 mins chargeable a week. Onecouldeasily spend that amount of time on admin.

[Kale629]

I was on a contract making exactly the same as you, £450/day. I used an umbrella comp

Lisa, I have generally maintained that inside ir35 and starting out may as well go brolly. There may be reasons not to if brolly cant be as flexible as you want with it pension route. If already have the co established then perhaps that changes.

but, on your calculator or website it might be worth putting up the calc for next years with the divi tax.

in my view itis clise enough for some people who just want an easy life to still go the brolly route with the more limited difference in the new regime.

I did a calc on my understanding of it based on 100k. If you are billing that much it worked out at about 90 mins chargeable a week. Onecouldeasily spend that amount of time on admin.

I was on a contract making exactly the same as you, £450/day. I used an umbrella company and the take home was circa 7k a month. Tried to compare limited company but definitely the take-home is nowhere near.