Take Home Pay: Umbrella vs. Limited Company

Choosing whether to set up a limited company or use an umbrella can be a difficult decision for contractors. Since pay can often be a factor when it comes to making the choice, our guide is here to help show you your potential earnings. 

There are two main savings with a limited company over an umbrella company: National Insurance and the Flat Rate VAT Scheme.

National Insurance Contributions

Being paid by an umbrella company means that you will pay National Insurance as both an employer and an employee.  Employer’s National Insurance is 13.8% of your salary, while employee’s National Insurance is 12% for the first £797 a week, and 1% thereafter (both after tax free personal allowances). These contributions will be deducted from your wages by your umbrella company before being paid to you. 

As the director of your limited company, the rate of National Insurance you are liable for will vary depending on earnings. As dividend income is not subject to National Insurance, it may be tax efficient to take a salary and the remainder as a dividend. You will be responsible for your National Insurance. However, your accountant can help you with this process. 

Flat Rate VAT Scheme

The flat rate scheme is an incentive provided by the government to help simplify taxes and is eligible to contractors who earn less than £150,000 in a financial year. This means that contractors can charge 20% VAT on invoices but only pay back the Revenue in your first year 13.5% of the gross amount and 14.5% in subsequent years. As the rules changed in 2017, our guide can help to explain what these changes could mean for you. 

You can also visit our Flat Rate VAT Scheme Guide page for a full list of the standard rates depending on your profession.

Support from SJD

For more information about contracting through your own limited company you can download one of our guides. Alternatively, you speak to our new client services helpdesk on 01442 330268 or email nikki.hanlon@sjdaccountancy.com.

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SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 15,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy has more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATT, AAT, CTA, ACCA, CA, ACA and FCCA.

  • Unlimited face to face meetings. This is a unique service only SJD Accountancy offers - unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's Largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant face to face.
  • Money back service guarantee. All your Emails received by 4pm on any normal working day will be answered the same day. Should it be necessary to leave a telephone message it will be answered same day/following day latest or we will make a full refund of that months fee.
  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee starting from £120 plus VAT per month. Check our packages for more detail.

If you have any questions about contracting or would like any further advice please call our new client services helpdesk on 01442 275789 or email: janice@sjdaccountancy.com. Our new client services helpdesk is open Monday to Friday (8am to 6pm).

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

Form your own Limited company with SJD - our same day online company formation service includes company bank account set up, VAT/PAYE registration and advice on optimum share structure. 

You may also find the following pages, guides and case studies useful:

*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.