Limited Company VS Other Options
The question of limited company vs other options is a very popular one, and one that is hard to answer. That why we help you to decide whether to set up a limited company or whether to use other options is a big decision for you and can impact your life in many ways. If you are choosing between setting up as a Limited company or working through an Umbrella Company the key point to consider is to balance maximising your take home pay with additional responsibilities. See below for more details –
Limited VS Umbrella
Take home pay
- Working through an umbrella company you can expect to take home around 66 to 76 per cent of what you earn.
- Working through a limited company you can expect to take home around 80 to 86 per cent or what your earn
- To work through a limited company you have to form a company with Companies House and make sure all the relevant paper work is in place. (Contractor Unlimited will take care of all of this administration work for you)
- However with an umbrella company the process is less complicated as you simply become an employee of the provider and therefore they take care of this for you
- Working through an umbrella scheme means you will be taxed on a Pay As You Earn (PAYE) system which is used by all employees. You can claim for some expenses however this is the most you can do to be tax efficient.
- However working through a limited company you are able to claim back a wider range of expenses, as you are the director and employee of your company. A few examples of expenses you can claim for is your Accountancy fees, Insurance fees and even a laptop which you may need (as long as it is for business purposes). You can also become VAT registered which means you can claim back for VAT which you incur on expenses.
- With umbrella schemes there is very limited paperwork, other than the payslip they provide you with.
- It is common that people believe that there is a lot of complex and time consuming paper work which needs completing for a limited company – however we think there is actually less than you would expect! Especially if you hire a reputable accountant to prepare the paperwork for you ready to sign off and file. However the paper work is ultimately your responsibility and therefore you do need to consider this.
- With umbrella schemes the money is paid to the scheme, the tax is calculated and deducted and you receive the NET pay – Just like a normal employee.
- However with a limited company the full amount goes into your business account. Giving you the option of how and when to extract money from your company. This enables you to have more control over your personal and company cash flow and a reputable accountant will give you the advice you need in order to manage this. As the money from the work you have provided goes directly to you – there is no “middle man” giving you much more control over your finances and business.
Limited Company VS Sole Trader
A high proportion of the UK has decided to work for themselves at some point in their careers. Recent studies show there are around 1.9 million contractors, freelancers and self-employed professionally operating around the country. Sole traders and Limited companies are the most common way of Contractors trading. If you want to have your own business these two are the options you should be choosing from – but which one is best for YOU!
Take Home Pay
- Sole traders are taxed through self-assessments which are done annually. Any income received from self-employment is taxed on a PAYE basis which is the same as if you were an employee.
- Limited companies have an estimated take home pay of around 80-86%. This means you would be expecting to have a higher take home pay than working as a sole trader.
- As a sole trader your only responsibility is to submit a self-assessment each year
- However as a limited company there are additional requirements throughout the year. As a director you have responsibilities set out under Companies Act 2006 regarding corporate governance. However a reputable accountant will explain these and be able to assist.
- As a sole trader you as an individual are responsible for your trading affairs. This means that unfortunately your personal finances and possessions are at risk.
- A limited company offers you protection as an individual as the company is responsible for trading’s and responsibilities. As long as the director has fulfilled their responsibilities the director would not be at risk of personal liabilities.