Umbrella Company vs Own Company

[9512691]

Hi,

I am new to contracting, however I have heard that it is much better to have your own company when contracting, rather than using an umbrella. For instance tax concessions etc. I am currently working with an umbrella company I am honestly getting close 50% of what I earn taken in tax and NI. Are there advantages of having your own company?

Thanks

[DS23]

yes, something to do with tax concessions i think.

[Beefy198]

Yes, you get to give yourself whatever job title you like.

[sweetandsour]

It is possible for a contractor to legally pay only 10% tax on their earnings by using a Limited Company.

This can be done by keeping all the earnings in the company bank account and withdrawing it as a capital distribution and applying for entrepreneurs' relief when you stop contracting and close the company.

You can only do this once though, and only up to £1,000,000.

hth

[original PM]

If you are getting close to 50% in Tax and Ni from your brolly I would assume that

a) You have not claimed any expenses

b) you are on a BR or week 1 tax code (check your tax code on a recent payslip)

It will also depend on current earnings to date and the length of tax period you must recent pay was worked out on.

[KentPhilip]

It is possible for a contractor to legally pay only 10% tax on their earnings by using a Limited Company.

This can be done by keeping all the earnings in the company bank account and withdrawing it as a capital distribution and applying for entrepreneurs' relief when you stop contracting and close the company.

You can only do this once though, and only up to £1,000,000.

hth

really? What about corporation tax though? That'll have it away with 20% for a start.

[Fred Bloggs]

Equally, it is possible for a contractor to pay precisely zero tax if he pays all the company turnover into a SIPP. And if you're (currently) over 50 you may draw 25% of that out again free of any tax. This is a situation I am steadily working towards.

[sweetandsour]

really? What about corporation tax though? That'll have it away with 20% for a start.

Oh yes, I didn't think of that.

Should I have been paying this?

[PhilAtBFCA]

Limited or Umbrella

9512691

You may need to consider more than just the financials before starting your own business, there are responsibilities to be assumed and also start up and closure costs.

You may find this link useful, there is a video and a spreadsheet that does the financials for you so you can consider Ltd Company, partnership, Sole Trader, Umbrella or PAYE with an agency.

Phil

[ANSOF]

50% seems very low, I have worked with umbrella companies before and i have come out wtrh around 85% of my gross income.

There are benefits of having your own limited company tho, one of my friends works with Danbro ltd, an accountancy company. They seem relaible and set up is quick and easy.