Agency v Umbrella v LTD

**lambrini_socialist** · 19 June 2008, 16:03

dunno about agency PAYE but umbrellas pay about 58% and a Ltd will pay around 75 - 80% depending on how you run it. strongly suggest you spend more time reading and researching though or else you might get flamed.

**TheBigYinJames** · 19 June 2008, 16:09

Originally posted by lambrini_socialist View Post

dunno about agency PAYE but umbrellas pay about 58% and a Ltd will pay around 75 - 80% depending on how you run it. strongly suggest you spend more time reading and researching though or else you might get flamed.

Also, is it feasible to assume no/low costs? Substantial (lgit) expense claims could make the brolly/Ltd look much better than the PAYE.

I have a natural suspcion of agencies who want to take you on via their own PAYE scheme, I always suspect they're creaming you twice.

**ASB** · 19 June 2008, 18:37

Originally posted by RichA View Post

LTD (£33/hr):
Gross: £66,000 p.a.
Net: £54,380
Lees Fees: £1,140
= £53,240 (81%)

LTD:

Turnover 66,000
Salary 5,500
Fees 1,140

Gross Profit: 59,360
CT: 12,465

Company net profit: 46895

The net profit is the company's not yours. But lets assume it had a generous dividend policy and decided to pay it all to you. They you position looks roughly like this:

Gross income: 5,500 (No tax/ni because it is the zero band - near enough) + 46895 *10/9 (the tax credit) = 57605 gross income.

The firt 41,500 (approx) is the personal allowance plus the 20% band. The tax credit on the dividend meets this liability. Now you are 16105 into the higher rate band with the [gross] dividend. This is taxed at 22.5% (25% of the net). Thus you have 3600 of higher rate tax to pay on the dividend.

So your net income is:-

5500 from the salary
46895 from the net dividend received
3600 tax to pay.

48795 net. (And the company is boracic).

Depending upon your personal circumstances you might be able to improve on this by "income sharing".

If you want exact figure a good way of doing it is to plug 'em in the online tax return at HMRC and not submit it.

**Rialto99** · 19 June 2008, 19:11

Originally posted by lambrini_socialist View Post

dunno about agency PAYE but umbrellas pay about 58% and a Ltd will pay around 75 - 80% depending on how you run it. strongly suggest you spend more time reading and researching though or else you might get flamed.

Remember the PAYE rate should always be less than the Umbrella or PSC rate. Agencies should (but not always do!) pay an inflated 'Ltd' rate to reflect the fact that they save the Employer's NIC, Holiday / Sick Pay and don't have the administrative burden of running PAYE payroll when you're on their books.

I'd therefore look at what you actually take home in each situation rather than comparing %s.

R

**RichA** · 19 June 2008, 20:40

Thank you for that recalculation. A great help. And it all makes sense. I put too much faith in an online calculator.

Still, £49k is plenty more than £41k.

This £49k is also slightly below the "75%-80% of your contract value" that one reads about. Although I guess with the use of expenses it wouldn't take much to reach 75% (£49.5k).

**VectraMan** · 19 June 2008, 21:50

Originally posted by RichA View Post

This £49k is also slightly below the "75%-80% of your contract value" that one reads about. Although I guess with the use of expenses it wouldn't take much to reach 75% (£49.5k).

Forget about expenses as a way to make money.

One advantage to the Ltd. route is you can choose to pay yourself less and leave the money in the company. Ideally you'd pay yourself just up to the upper rate, something like £37K. If you find yourself out of work next year you can make that payment as part of next years allowance ultimately saving the tax, whereas with an umbrella or PAYE you'd have to earn it all this year and pay the 40%.

If you were to do that, then essentially the only tax you'd pay would be the CT and you'd be left with £52395 by ASB's figures, which is 79%.

You can also shut the company down sometime in the future and only pay the widely publicised 10% on the remainder.

So it's not just about what it saves you: a Ltd. also gives you control of what you earn and when you earn it.

**LisaContractorUmbrella** · 20 June 2008, 07:25

When thinking about the options you have there are also other things to consider than % earnings (although obvioulsy it will be high on the list

). You are coming from permanent employment to contracting - do you know this will be a permanent move? How long is your initial contract? What happens if you set up a Ltd Co., hate contracting and then have to close it down after 3 months? Will your contract be inside or outside of IR35? If you are inside the dividend calculation shown will not be applicable. If you are new to all this it's always a good idea to look at pro's and con's of all your options.

**RichA** · 20 June 2008, 08:45

I would imagine I would be inside IR35. How is the calc carried out in this instance?

I would expect the first contract to be 3-6 months.

Thanks.

**ASB** · 20 June 2008, 08:53

Originally posted by RichA View Post

I would imagine I would be inside IR35. How is the calc carried out in this instance?

I would expect the first contract to be 3-6 months.

Thanks.

You're not going to like tihs......

If you are inside IR35 then your are "deemed" to have a salary of 95% of the relevant billings. About the only mitigiation strategy is pension contributions.

So in your 66k example you will subject to paye (gross including emplyoers NI) on bradly 63k of it.

Whether you are in or out of IR35 is a different matter though. If you are absolutely convinced you are inside then - unless you are planning large pension contributions - I personally would be inclined to go the brolly route since it is less hassle even though it is slightly more expensive.

Of course the sticky links at the top of this page do go into all this is great detail.

Agency v Umbrella v LTD