It is worth running a limited company with low income?

[Craig@Clarity]

Hello,
I'm selfemployed but the company I work for is not allowing me anymore to be self-employed. My agency suggested me to go limited company rather then getting paid PAYE. I'm earning £20000-24000/year maybe more but that amount is for sure , on this amount of money I would be better of limited company? I'm working in construction so I will have to register the company CIS.
Thank you in advance!
Best regards.

Hi Mike,

As a rule of thumb as NLUK mentioned, somewhere over £30k+ profit will be when going limited is worthwhile. However, in your case in construction and CIS, if you go PAYE (Umbrella) then you'll need to apply the CIS they use on your jobs. I've not personally seen anyone use PAYE in this industry but I'm sure there are schemes out there.

Back on track, if you have to go limited, then nothing changes in how you actually carry out your physical work. You'll have to register your company for a new CIS (separate to your self employed one) and apply for either a gross payment certificate or have 20% deducted by the contractor, as you probably know. A limited company can be setup within 24hrs and CIS applied for thereafter. Everything would then switch over to the company name (invoicing, bills etc).

By the nature of your work in construction you're transient. The contractor should be declaring that your employment status has been considered and payments have not been made under contracts of employment when they submit their monthly CIS return (CIS300) and issue you with a payment certificate. Therefore, IR35 shouldn't be an issue.

[northernladuk]

I have assumed that IR35 doesn't apply and a salary of £8,424 is paid on the limited company scenario.

So we need to get in to the IR35 status of his gig before he can make a decision then.

[Alchemy Accountancy]

Is that limited figure assuming outside IR35 or inside? The revenue figures quoted here are in temping territory not PSC levels.

I have assumed that IR35 doesn't apply and a salary of £8,424 is paid on the limited company scenario.

[northernladuk]

I have done a quick calculation and based on revenue of £20k with no expenses (except a small salary from the limited company), the take-home pay for each scenario would be as below:

Umbrella - £16,026
Sole Trade - £17,174
Limited Company - £17,504

This calculation does not factor in accountancy fees, which are typically higher for a limited company than a sole trader - hence the £30k figure mentioned by NLUK.

If operating as a sole trader is not an option for you, and the decision is between using an umbrella or a limited company - then the difference in tax would more than offset the higher accountancy fees in most cases, making a limited company a better option if your decision is purely financial. Offsetting any financial benefit, you should also consider that there is additional admin to take-on with a limited company compared to using an umbrella.

All of this could change after the budget has been announced tomorrow.

Craig

Is that limited figure assuming outside IR35 or inside? The revenue figures quoted here are in temping territory not PSC levels.

[Lance]

If forced into either a LTD or an Umbrella, but the idea of an umbrella leaves a nasty taste in the mouth, then go LTD even if it costs a little more. At least you'll have control.

Another thought would be to shop around for umbrellas as some of them are not just parasites (albeit a lot are). This forum is more about IT workers, but the umbrella threads may be worth a read.

EDIT: don't try it without an accountant. Not sure if any of the FreeAgent accountants who lurk here would be able to help a builder, but I'm sure they'll tell you if they can't help.

[Mike82]

I have done a quick calculation and based on revenue of £20k with no expenses (except a small salary from the limited company), the take-home pay for each scenario would be as below:

Umbrella - £16,026
Sole Trade - £17,174
Limited Company - £17,504

This calculation does not factor in accountancy fees, which are typically higher for a limited company than a sole trader - hence the £30k figure mentioned by NLUK.

If operating as a sole trader is not an option for you, and the decision is between using an umbrella or a limited company - then the difference in tax would more than offset the higher accountancy fees in most cases, making a limited company a better option if your decision is purely financial. Offsetting any financial benefit, you should also consider that there is additional admin to take-on with a limited company compared to using an umbrella.

All of this could change after the budget has been announced tomorrow.

Craig

Thank you fo reply.
Accountancy fee would be £600/year, and payment fee for my agency is £20/week witch works out about £1000/year, but there is tax rebate about £2000-2500/year maybe more, so I would be better off with limited company if its not a specific limit of earning a year like £30.000-40.000/year. For the moment I choose PAYE without umbrella, the payrate is a bit lower then umbrella but I don't have to pay two NI's and all other fees....

[Alchemy Accountancy]

Hello,
I'm selfemployed but the company I work for is not allowing me anymore to be self-employed. My agency suggested me to go limited company rather then getting paid PAYE. I'm earning £20000-24000/year maybe more but that amount is for sure , on this amount of money I would be better of limited company? I'm working in construction so I will have to register the company CIS.
Thank you in advance!
Best regards.

I have done a quick calculation and based on revenue of £20k with no expenses (except a small salary from the limited company), the take-home pay for each scenario would be as below:

Umbrella - £16,026
Sole Trade - £17,174
Limited Company - £17,504

This calculation does not factor in accountancy fees, which are typically higher for a limited company than a sole trader - hence the £30k figure mentioned by NLUK.

If operating as a sole trader is not an option for you, and the decision is between using an umbrella or a limited company - then the difference in tax would more than offset the higher accountancy fees in most cases, making a limited company a better option if your decision is purely financial. Offsetting any financial benefit, you should also consider that there is additional admin to take-on with a limited company compared to using an umbrella.

All of this could change after the budget has been announced tomorrow.

Craig

[Mike82]

I would wait for Hammond's budget on Monday then decide, lots of companies are blanket banning limited companies in favour of umbrella payroll companies.
A good accountant can make a ltd company work for you, ask other people on site which accountant they use word of mouth is best but always do your sums first, umbrella might be best over the duration of the year.

Thank you for reply. I used just once an umbrella company and I was paying to much tax and payment fee every week, I had the impression Umbrella i just a legal way to steal money. Temporary I choosed to be paid PAYE but they lowered the payrate.

[Jacobskelly]

Hello,
I'm selfemployed but the company I work for is not allowing me anymore to be self-employed. My agency suggested me to go limited company rather then getting paid PAYE. I'm earning £20000-24000/year maybe more but that amount is for sure , on this amount of money I would be better of limited company? I'm working in construction so I will have to register the company CIS.
Thank you in advance!
Best regards.

I would wait for Hammond's budget on Monday then decide, lots of companies are blanket banning limited companies in favour of umbrella payroll companies.
A good accountant can make a ltd company work for you, ask other people on site which accountant they use word of mouth is best but always do your sums first, umbrella might be best over the duration of the year.

[Mike82]

There used to be a rule of thumb that it wasn't worth running a Ltd until you hit around 30k. Not sure what this number is now with the changes to expenses but I'd say no it probably isn't worth it for that amount.

Thank you for reply, self-employed would be the best solution but unfortunately they don't allow it.
Would be better PAYE with an umbrella company or just PAYE?
Umbrella company is just giving me the impression of stealing money paying a high level of tax...

[northernladuk]

Hello,
I'm selfemployed but the company I work for is not allowing me anymore to be self-employed. My agency suggested me to go limited company rather then getting paid PAYE. I'm earning £20000-24000/year maybe more but that amount is for sure , on this amount of money I would be better of limited company? I'm working in construction so I will have to register the company CIS.
Thank you in advance!
Best regards.

There used to be a rule of thumb that it wasn't worth running a Ltd until you hit around 30k. Not sure what this number is now with the changes to expenses but I'd say no it probably isn't worth it for that amount.

[Mike82]

Hello,
I'm selfemployed but the company I work for is not allowing me anymore to be self-employed. My agency suggested me to go limited company rather then getting paid PAYE. I'm earning £20000-24000/year maybe more but that amount is for sure , on this amount of money I would be better of limited company? I'm working in construction so I will have to register the company CIS.
Thank you in advance!
Best regards.