PAYE vs Umbrella Company VS Ltd Co..... etc etc

PAYE vs Umbrella Company VS Ltd Co..... etc etc

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Dan_1981

Original Poster:

17,404 posts

200 months

Wednesday 9th June 2010
quotequote all
Need some info and help regarding the above really.....

Contract work paying approx £75 per day(!) on a contract that is likley to last 6 months.

What is the best way to go?

Any reccomendations for going with an Umbrella company - as this is what the agency is reccomending?

Setting up as LTD? Worth it? too much trouble?

Or just settling for PAYE?

ewenm

28,506 posts

246 months

Wednesday 9th June 2010
quotequote all
If it's something you'll be doing for a while, so more contracts in the future after this one, then I'd say set up a LTD company. If you'll only be doing this 6 months then an umbrella company is easier but you'll not get as much cash.

alancovkid

73 posts

168 months

Wednesday 9th June 2010
quotequote all
I have just done some work for Perkins engines and went through an umbrella company. I would not do it again as they make it sound ideal and easy but that's just not true.
the company i used was called BROOKSON and they took 6 weeks to deal with my expenses!! not bad when you are paying them nearly £30 a week to sort out your tax etc.
try a ltd company and find an accountant would be best option

hope this helps

alan

Edited by alancovkid on Wednesday 9th June 21:13

grumbledoak

31,551 posts

234 months

Wednesday 9th June 2010
quotequote all
Limited companies are cheap off the shelf, but there are much fewer tax advantages than there were and good accountants are not cheap.

I'd go PAYE, frankly.

itsnotarace

4,685 posts

210 months

Wednesday 9th June 2010
quotequote all
For 6 months a decent umbrella company would be fine as you could then claim expenses / mileage at 40ppm etc. This can add up to a decent tax saving which you wouldn't get on PAYE

The only reason to go PAYE imho is if you wanted your holiday days paid.

Eric Mc

122,071 posts

266 months

Thursday 10th June 2010
quotequote all
grumbledoak said:
Limited companies are cheap off the shelf, but there are much fewer tax advantages than there were and good accountants are not cheap.

I'd go PAYE, frankly.
There are still MANY tax (or, to be more accurate, NI) advantages - provided you stay outside the clutches of IR35.

Dan_1981

Original Poster:

17,404 posts

200 months

Thursday 10th June 2010
quotequote all
Hmmm this may well eb aone off so I'm thinking i'll go with an umbrella company.

Parasol have been reccomedned?

The GMan

2,508 posts

256 months

Thursday 10th June 2010
quotequote all
A company got in touch with me recently about me becoming an employee of a company in the Isle of Man, similar set-up to an Umbrella Company, and you got something like an 80-85% return on what was invoiced.

I declined as set-up with a Limited company and VAT registered, also I had a feeling these sort of companies might be picked on by HMRC soon and the loophole closed.

Saying that it might be worth a punt for you? I can try and dig out the info if you want.

An Umbrella company as has been mentioned would be a good option due to what you could put through as expenses, giving you a good return.

Eric Mc

122,071 posts

266 months

Thursday 10th June 2010
quotequote all
The GMan said:
A company got in touch with me recently about me becoming an employee of a company in the Isle of Man, similar set-up to an Umbrella Company, and you got something like an 80-85% return on what was invoiced.

I declined as set-up with a Limited company and VAT registered, also I had a feeling these sort of companies might be picked on by HMRC soon and the loophole closed.

Saying that it might be worth a punt for you? I can try and dig out the info if you want.

An Umbrella company as has been mentioned would be a good option due to what you could put through as expenses, giving you a good return.
These off-shore companies are a very highb risk strategy and, to my mind at least, atre borderline fraud.

They work on the basis that they are not PAYING you any money - but LENDING it to you. However, they never ask for the money back from you (you hope).
HMRC are already VERY interested in such set-ups and I would not touch such an operation with the proverbial barge pole.

shirt

22,619 posts

202 months

Thursday 10th June 2010
quotequote all
I'm in a similar situation to the OP - £150/day, 6mth contract.

how quickly can I set up a ltd. co. and what are the costs involved? what % of my gross earnings would I retain?

same qn. if I used an umbrella - what would my % net earnings be?

if it has any bearing, I'd be commuting 500 miles per week.

also - would I need business cover on my insurance policy?

Dan_1981

Original Poster:

17,404 posts

200 months

Thursday 10th June 2010
quotequote all
The umbrella company i was reccomended charge a flat £23 per week.


Eric Mc

122,071 posts

266 months

Thursday 10th June 2010
quotequote all
shirt said:
I'm in a similar situation to the OP - £150/day, 6mth contract.

how quickly can I set up a ltd. co. and what are the costs involved? what % of my gross earnings would I retain?

same qn. if I used an umbrella - what would my % net earnings be?

if it has any bearing, I'd be commuting 500 miles per week.

also - would I need business cover on my insurance policy?
You will always keep more from your own limited compnay PROVIDED you can avoid the clutches of IR35.

shirt

22,619 posts

202 months

Thursday 10th June 2010
quotequote all
can you explain in layman's terms what is ir35?

the contract is with one company at a single site. I'm told it'll be a 6mth term with a possible extension to 12mths.

what are the costs involved in setting up a ltd. co. other than finding a good accountant?

is there a website that explains all the ins and outs?

Eric Mc

122,071 posts

266 months

Thursday 10th June 2010
quotequote all
If you supply personal services through your your own limited company, IR35 is always an issue.

Essentially, HMRC are wary about people who operate through their own limited company because they can reduce their overall tax and NI liabilities by manipulating how they withdraw their own personal income out of the company they own.

If you were an ordinary employee, your employer with calculate the appropriate PAYE and National Insurance costs (both Employee's and Employer's) on the salary they pay you.

If instead they pay your limited company (rather than you personally) they don't have to worry about calculating the tax and NI. They just pay to your company the amount you have invoiced them.

YOUR company is responsible instead for calculating the PAYE and NI on whatever amounts you chose to withdraw from your own company in the form of salary. The key point is that YOU can chose how much to treat as salary.
Within certain limitations, you can chose to treat the balance of the income you draw out from the company for yourself as a Dividend instead. Dividends overall are subject to less Income Tax than an equivalent salary amount and dividends are NEVER subject to NI.

Obviously, HMRC do not like this and they can insist on your company accounting for PAYE and NI on ALL the income available to you from your company. This is the nub of IR35.

The key to avoiding IR35 is to show that your company is a genuine business and a genuine trading entity - not a form of "intermediary" between you and the people you work for merely acting as a kind of buffer whereby you can manipulate and reduce the tax amounts due.

Edited by Eric Mc on Thursday 10th June 18:07

The GMan

2,508 posts

256 months

Thursday 10th June 2010
quotequote all
shirt said:
I'm in a similar situation to the OP - £150/day, 6mth contract.

how quickly can I set up a ltd. co. and what are the costs involved? what % of my gross earnings would I retain?

same qn. if I used an umbrella - what would my % net earnings be?

if it has any bearing, I'd be commuting 500 miles per week.

also - would I need business cover on my insurance policy?
You can set-up a Limited company in hours, but you will also need a business account for the company too and a good accountant. There are loads of decent places online that will do everything for you for an initial fee, and then sort out your accounts and PAYE from about £70 per month. % of your invoice retained can vary on what you claim for as expense, how much you pay yourself as an employee of your company via PAYE and also the amount you pay yourself through dividends and into a pension fund.
Insurance wise for Public Liability its about £80 per year for me covering me up to £2m, and my Indemnity cover is about £240 for the year up to £1m.

anonymous-user

55 months

Thursday 10th June 2010
quotequote all
My last contract was for 14 months and I used Parasol. I personally never had a single problem with them and could almost predict when I would get paid to the hour.

It only took me 10 minutes each month to enter timesheets, mileage allowance and expenses and they took care of the rest.

shirt

22,619 posts

202 months

Thursday 10th June 2010
quotequote all
Joey - what % net were you getting back from Parasol?

zippy3x

1,315 posts

268 months

Thursday 10th June 2010
quotequote all
I haven't used an umbrella company for a few years now - so I could be wrong, but I was under the impression that out of your net income going into the brolly company, you would have to deduct employees NI on the whole amount, PAYE on the whole amount and criticaly employers NI on the whole amount (plus of course the ~£30pcm admin costs).

That would make you worse off that being an employee (who obviously wouldn't have to pay employers NI).

As Eric explained the advantage of a Ltd is that you only pay NI (employees and employers) and PAYE on part of the amount, with the rest taxed as dividends at a lower rate. However, assuming a 7.5 hour day your getting £10/hour. The national minimum wage will mean you must take £5.80 of that £10 through PAYE, meaning you're only paying the lower dividend rate on about £4.20, making the Ltd. option slightly more attractive, but not as far as I can see vastly more attractive. Even with an online accountant you're looking at about £60-70 per month in charges.

If you have the option to be an employee, which i'm assuming because you mentioned PAYE, then I would definately go for that.
You would take home more than thru an umbrella company, and as an employee, would be entitled to holidays, statutory sick pay etc. I would think in the grand scheme you would be better off as an employee, than going thru a ltd.

cs174

1,150 posts

221 months

Friday 11th June 2010
quotequote all
shirt said:
what are the costs involved in setting up a ltd. co. other than finding a good accountant?

is there a website that explains all the ins and outs?
I set up my Ltd Co this week through Wisteria Formations. Prices start at around £25. It took me about 30 minutes and the Company was incorporated the next day.

www.wisteriaformations.co.uk

Edited to add link.




Edited by cs174 on Friday 11th June 05:12

shirt

22,619 posts

202 months

Friday 11th June 2010
quotequote all
much obliged, thanks for the link.

think I'd prefer the ltd route and deal with ir35 as it arises. from what I've read here, the worst that could happen is I would be taxed as though the 150/day was my wage. still a good rise over my last staff job.

just need to secure the gig now smile