There has been quite a lot of chat on the board, over the last few months, about the percentage take home pay that can be 'achieved' using different umbrella companies, EBTs, limited company etc etc.
As things stand at the moment, if you do not want to attract any undue attention from HMR&C, you basically have 2 options available to you - an umbrella company or your own limited company. However, if your contract is inside IR35, you will receive payment via PAYE regardless of which option you take.
If you are paid via PAYE you will be liable for income tax and national insurance contributions. Your earnings up to £34,800, less your tax free allowance, will be taxed at 20%; everything above this will be taxed at 40%. National insurance rates are 11% for employee's and 12.8% for employer's on earnings above £105 per week.
So, assuming you are a contractor earning, say, £300 per day how on earth do you take home 85 or 90% of your earnings??? Good question. The answer is that you can't without offsetting the vast majority of your tax liability. There are several ways of doing this:
You can put everything over minimum wage into a pension scheme - this option will leave you next to nothing to live on for the next 20 or so years but you should be reasonably well off after that.
You can claim expenses. To use our example of earnings of £300 - to net 85% of your earnings you would need to claim over £800 in expenses each and every week. Whilst this is possible it is unlikely as you would be working for £700 gross a week rather than £1500 gross as your outgoings would be over £800. Of course you would get tax relief on the expenses but you would still have spent that money in the first place.
So, schemes that promise 80-90% take home can actually offer that but only if your expenses are at the sort of level shown above. If your gross earnings are £300 per week and you work 25 miles from home and don't want to invest in a pension you will not net 80-90% - if you do please expect a visit from one of the lovely chaps at the HMR&C sometime soon.
HTH
As things stand at the moment, if you do not want to attract any undue attention from HMR&C, you basically have 2 options available to you - an umbrella company or your own limited company. However, if your contract is inside IR35, you will receive payment via PAYE regardless of which option you take.
If you are paid via PAYE you will be liable for income tax and national insurance contributions. Your earnings up to £34,800, less your tax free allowance, will be taxed at 20%; everything above this will be taxed at 40%. National insurance rates are 11% for employee's and 12.8% for employer's on earnings above £105 per week.
So, assuming you are a contractor earning, say, £300 per day how on earth do you take home 85 or 90% of your earnings??? Good question. The answer is that you can't without offsetting the vast majority of your tax liability. There are several ways of doing this:
You can put everything over minimum wage into a pension scheme - this option will leave you next to nothing to live on for the next 20 or so years but you should be reasonably well off after that.
You can claim expenses. To use our example of earnings of £300 - to net 85% of your earnings you would need to claim over £800 in expenses each and every week. Whilst this is possible it is unlikely as you would be working for £700 gross a week rather than £1500 gross as your outgoings would be over £800. Of course you would get tax relief on the expenses but you would still have spent that money in the first place.
So, schemes that promise 80-90% take home can actually offer that but only if your expenses are at the sort of level shown above. If your gross earnings are £300 per week and you work 25 miles from home and don't want to invest in a pension you will not net 80-90% - if you do please expect a visit from one of the lovely chaps at the HMR&C sometime soon.
HTH
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