You can set yourself up as a limited company and still pay yourself PAYE, but it's more efficient to pay yourself a small salary and take the rest of the cash via dividends.
There's quite a few things to factor in when comparing straight PAYE against limited/dividend route, but the main different is employers NI (12.8%) which you avoid going the dividend route.
As a very rough guide you are probably 10%-15% better off setting up a limited and paying dividends.
When it comes to negotiating, the client isn't going to care how you structure yourself, they're just concerned about how much it is going to cost them. Get the highest rate you can from the client and then just structure yourself so you pay as little as legally possible to the taxman (limited company is a good option).
There's no need to get an accountant before you get a contract; you (or your accountant) can set up a company in less than a day.
A month is stacks of time, but you may find it quite difficult to get a contract if you need to give a months notice. Most contracts won't wait that long for you unless you're really special with niche skills.
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New To Contracting
Hi All,
Some great information here, however one question I have (and please excuse my ignorance).
But why are there different rates for contracting on a PAYE basis vs using a LTD company.
From all of your explanations a LTD company looks like the way to go, however if for example I wanted £40 per hour on a PAYE contractor basis, how would I work out the equivalent to negotiate if contracting through a LTD company.
Finally, should I contact an accountant before getting a contracting job? or is the one month notice period from my permanent role to starting in a contracting role enough time to sort everything out?
Many thanks!
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