New contractor role - umbrella company please help

gettingready

I work via Ltd not Umbrella but have a look at the calculator here, perhaps this will give you some idea:

http://www.sjdaccountancy.com/contractor_calculator/index.html

Also:

http://www.sjdaccountancy.com/about/ourservices/how_much_can_I_earn_as_contractor.html

EDIT: Oh dear, checked the calculator posted by Scheming_Gypsy and glad I work through ltd. Thanks for posting this.
According to the calculator, on your rate with ltd you would take home 507 per week.

getmore4less

You don't save TAX by being ltd, corporation is the same as base and once into the 40% you pay extra anyway.

Where you save is NI when you pay out profits as dividends rather than salary. and your cantracts need to be outside IR35 for that.

13.8% for the employers NI + any saved employee NI.

Employee NI is 0%(£149), 12%(next £648), 2% rest.


When I looked at the options for a first time the umbrella fees were similar to the flat rate accounting for Ltd. setup cheaper for umbrella but thats only a few £100.

Allthough if you plan to work a short number of weeks or have big gaps check if they charge for the weeks/months you have no earnings.

My attitude to tax has changed as a contractor I think of the First 10k as tax free, next £32k as 20%, rest as 40%, where as full time I tend to think of it on the weekly monthly bases.

Also I did some number crunching and with umbrella if you earn over £797pw it can pay to bulk up expences so they bring your wage down to min wage for the week/month you claim. (saves 12% rather than 2% of employee NI on £649).

Another area where you can reduce your tax liability is to look at the pension provisions, these can come from gross saving the NI as well as the tax.

gettingready

I guess some things depend on the rate you are on?

My current rate is 300 per day and with my number crunching ltd is/was a better option (I am outside R35)

BUT it is my first contract (always worked in "perm" jobs) so will just have to wait and see.Learning as I go....

getmore4less

gettingready wrote: »

I guess some things depend on the rate you are on?

My current rate is 300 per day and with my number crunching ltd is/was a better option (I am outside R35)

BUT it is my first contract (always worked in "perm" jobs) so will just have to wait and see.Learning as I go....

Ltd will work out better for many once over min wage the saving start to kick in

You have to pay yourself min wage anyway(not sure what the min hours HMRC will accept. say 37.5 thats £12k the next 12k paid as dividends saves around £1500 in employer NI and around £1400 in employee NI.

One thing you have to watch is some calculators make assumptions which don't work for all rates especialy if you don't plan to work close to full time, 46 weeks a year.

employee NI are on weekly/monthly not the same as the tax which is cummulative

eg £300pd *5 *26(1/2 year) £39000

£39k
earned over 12months the employee NI would be around £3,750
earned over 6 months and take 6 month off NI would be around £2,387

scheming_gypsy

gettingready wrote: »

I work via Ltd not Umbrella but have a look at the calculator here, perhaps this will give you some idea:

http://www.sjdaccountancy.com/contractor_calculator/index.html

Also:

http://www.sjdaccountancy.com/about/ourservices/how_much_can_I_earn_as_contractor.html

EDIT: Oh dear, checked the calculator posted by Scheming_Gypsy and glad I work through ltd. Thanks for posting this.
According to the calculator, on your rate with ltd you would take home 507 per week.

I had a quick look at that and it also says:

Our contractor calculator provides an illustration of the maximum amount a contractor could take from their contract when working through their own limited company. It assumes full tax planning and a number of other procedures are in place, some of which are quite complex and are best discussed directly with your accountant.

It's a second line, office based support, role and I travel 3.7miles each way and never work from home. There's very little in the line of tax breaks that I can actually claim from this contract.
I did look into going down the Ltd route a while ago but until I sort my head out it's not the best idea. I'm far too disorganised and carefree at the minute to do it properly.

Pennywise

Unless your rate is very low and/or you expect it to be very short term (6 months or less), ltd will probably be better than umbrella for the following reasons:

1. Accountancy fees are usually broadly the same as Umbrella company fees.

2. You can claim the same expenses either way whether an umbrella or ltd - i.e. travel, subsistence, etc - the same laws/rules apply that you have to spend the money to claim it against your tax. There are no special rules allowing higher expenses claims via an umbrella.

3. If you VAT register under the flat rate scheme, you can profit by paying over less VAT to HMRC than you charge to the client.

4. Even if IR35 applies, you're no worse off as you end up being paid under PAYE, but you can benefit from the 5% expenses allowance not available under the umbrella.

5. In a ltd, you DON'T have to pay minimum wage, if IR35 doesn't apply, so you don't have to pay any NIC at all.

5. You can benefit from timing, i.e. you can choose when you take money out of Ltd, so you can "transfer" income from one year to another - useful if you'd hit higher rates one year but not another.

The only benefit of an umbrella is simplicity, i.e. you can leave it all to them and have to do little yourself.

gettingready

I do not do anything myself really - use accountancy services for that.

Thanks for all relevant replies.

OP - sorry, did not mean to hijack your thread .

MoneySavingMission

thanks for comments. Why do i have to pay employers NI under umbrella employment costs? THe umbrella company want a 13.8% fee, which i've seen 13.8% appear on this post. Is this industry-standard? i think it is a rip-off but at the same point only short-term contract so not worth going down the ltd route. arrrggghh!!

scheming_gypsy

you have to pay it because somebody has to pay it. The agency is paying you £x an hour but it's up to you if you're Ltd or Umbrella. The Umbrella then charges you a fee to do your wages then out of what's left you have to pay the rest.

The agency can't pay your employers NI because they're paying the flat rate to you or the umbrella company. The umbrella company can't pay it because you're only paying them £25 a week and it's 'our' choice to use an umbrella company. I presume if you were Ltd you'd have to pay it as well.
13.8% is the employers NI rate. If you don't want to pay employers NI then you'll need to ask the agency if you can go PAYE. You'll get your paid holidays and won't pay employers NI, but you'll also get a lower hourly / daily rate because the agency is paying for your holidays and employers NI.. and you won't be able to get the tax break on expenses.

keyser666

scheming_gypsy wrote: »

I'm not sure off the top of my head but on £16.16 an hour for 37.5 hours, I take home on average £425.66. That's claiming £30 expenses.

As mentioned earlier I use http://www.paystream.co.uk/umbrella-company there's a basic calculator on the right to give you an idea of take home. It's a bit more basic than it used to be but gives a rough idea.
I submit my timesheet to the agency on Monday, they pay Paystream / My Max on Wednesday, I get my pay slip and text confirming how much i'll be paid, on the Thursday and it's in the bank Friday morning (although sometimes everything comes through a bit later but still paid on Fridays).

scheming_gypsy wrote: »

I had a quick look at that and it also says:



It's a second line, office based support, role and I travel 3.7miles each way and never work from home. There's very little in the line of tax breaks that I can actually claim from this contract.
I did look into going down the Ltd route a while ago but until I sort my head out it's not the best idea. I'm far too disorganised and carefree at the minute to do it properly.

Claiming £30 in expenses? Doesn't sound right. I would say you should have at least £80 per week in expenses