Did you know there are around 200,000 freelancers and contractors working through umbrella companies in the UK, and the majority would be better off forming a limited company!
Setting up your own limited company is the best approach for most contractors. Don’t be fooled by Umbrella Companies claiming greater tax saving – that’s simply not true. If you are unsure of whether contracting is for you or are just between permanent jobs, then an Umbrella Company may be the option, but it is the most expensive way to work.
Various accounting companies specialise in contractor accounting. A limited company can be set up within 3 hours for as little as £39.99. Our full compliance service for contractors will ensure you pay the minimum tax & national insurance necessary, while preparing all your accounting & tax returns to comply with Companies House & HMRC rules for your company.
The main savings with a Limited Company over an Umbrella are related to National Insurance and the Flat Rate VAT Scheme. With a Limited Company you are able to pay zero National Insurance (while still gaining credits for the state pension). So the savings in National Insurance can be significant e.g. if you are a contractor on £200 per day you’ll save around £9,000 per year or if on £600 a day save around £20,000 per year. In addition, by joining the Flat Rate VAT scheme, you are also able to increase your earnings e.g. a contractor on £200 per day will have £1,710 extra income per year or if on £600 a day will have £5,130 extra income per year.
So setting up a business as your own limited company will increase your take home pay significantly. A good accountant will guide you through the process, ensure you minimise your tax & optimise your take home pay.
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