How to work - PAYE or limited co

[citygogo]

I've been offered a private sector contract, £400/day for 12 months. Working 4 days/week.

I can work either:

1. PAYE via the agency - I would receive £400/day, less 12.8% - which is set aside to claim later for annual leave and bank holidays.

2. Incorporate a limited company and provide the services @£400/day through that. Initial view is that the contract should be IR35 compliant.

Which way would you choose to work? I'm new to contracting. Thank you for your assistance!

[Scotslaw]

I've been offered a private sector contract, £400/day for 12 months. Working 4 days/week.

I can work either:

1. PAYE via the agency - I would receive £400/day, less 12.8% - which is set aside to claim later for annual leave and bank holidays.

2. Incorporate a limited company and provide the services @£400/day through that. Initial view is that the contract should be IR35 compliant.

Which way would you choose to work? I'm new to contracting. Thank you for your assistance!

Your options are:
1. Umbrella company outside IR35. Check out the most commonly used umbrella company options on the forums. Umbrella will typically take 30-35%. They will do PAYE for you. You’ll get to claim some expenses.
2. Work through a limited company which will maximize your take home. Depending on your setup (single or multiple directors, pensions contributions etc.), you can take home a much higher % of your day rate. Down side is ltd co expenses like insurance, accountancy, filing etc.
I am not sure what the arrangement the agency is offering you. PAYE usually withholds income tax and NI from your earnings and pays them net of tax into your personal account. 12.8% seems super low to account for all tax liabilities on 12months*4days/week*£400/day. Be watchful that they’re not offering you a disguised remuneration scheme, which you should avoid as they are now illegal.
If the agency is keeping 12.8% for annual leave and bank holidays, how will you get access to that? Why wouldn’t you just hold on to that money? I must be missing something because it doesn’t make sense to me.
Either way, paying yourself through a limited company to take advantage of the low tax thresholds on income and dividends within the basic band is the clear way to go.

[citygogo]

Thanks Scotslaw

I think limited company is going to leave me better off, just not ever gone down that route before!

For the PAYE, agree the agency will deduct the usual personal tax and employee NI. The 12.8% deducted for leave I can then take via my timesheet eg I would accrue it then as I work claim it on a bank holiday, if I go away etc.

Always been a permanent worker so the options are new to me. I have done quite a bit of reading but looking for some reassurance I will choose the best route.

[Scotslaw]

Thanks Scotslaw

I think limited company is going to leave me better off, just not ever gone down that route before!

For the PAYE, agree the agency will deduct the usual personal tax and employee NI. The 12.8% deducted for leave I can then take via my timesheet eg I would accrue it then as I work claim it on a bank holiday, if I go away etc.

Always been a permanent worker so the options are new to me. I have done quite a bit of reading but looking for some reassurance I will choose the best route.

Limited company can be a bit daunting to start with. Based on my personal experience, I would go with a good accounting firm who will do the ltd setup, bank accounts, VAT registration, flat rate scheme enrolment (if suitable), will provide you with advice on the best way to withdraw funds from your company (salary/dividend/pension contributions etc.), and generally take care of things for you. You can gradually get involved to a greater extent as you come to grips with various things.
If you don’t want the hassle of all this, you should consider signing up with an umbrella company. They will sign you on as an employee, invoice the client/agency for your services and pay you a net salary after PAYE deductions. They might also do your taxes for you. You can shop around for an umbrella company that gives you a good take-home and a good level of service. Definitely avoid any umbrella which promises you 80% take home or more. Before you sign up to anything, ask fellow CUK members for references.
I still don’t see the point of the agency withholding 12.8% for holiday pay etc. Usually as a contractor, you will invoice and get paid for days you work, and won’t get paid for days you don’t.
Do you need to show a steady income source for some reason like borrowing? In either case, it’s better for you to hold on to your money in either your or your company’s account and have control on declaring earnings, structuring payments etc.

[northernladuk]

Don't forget to consider the future. If this is a one off to fill a gap you might just want to go brolly for simplicity. If you are making the jump contracting along term a LTD will be the way forward.

If it is that daunting you can alway go brolly for 3 months and ease in to it. The difference in take home will be pretty negligible years down the line. 10 or 15% difference for 3 months of a 10 year contracting career is peanuts really.

[citygogo]

Thanks guys, I really appreciate your comments.

Any suggestions which bank to open up a business account with (who have cheap or zero fees)?

[MrButton]

Thanks guys, I really appreciate your comments.

Any suggestions which bank to open up a business account with (who have cheap or zero fees)?

Do a search it’s been discussed many times..

For me I’d say metro have been excellent.

[simes]

Thanks guys, I really appreciate your comments.

Any suggestions which bank to open up a business account with (who have cheap or zero fees)?

Cater Allen is, I believe, a contractor favourite. Zero fees.