Take home pay examples

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Case study - Take home pay Umbrella and Limited Company

Umbrella option 

Steve - opted for using an umbrella company that charged him a monthly fee of 5% of his earnings (fee's can be as high as 10% of the invoiced contract amount).

Steve's decision to use an umbrella company was based on:
1. It was his first contract;
2. He wasn't sure if he'd be contracting for long;
3. He was a little worried about the paperwork involved in running his own ltd company.

After his first year of contracting Steve reviewed his finances:

Contract Value Invoiced £65,000
Expenses £6,000
Umbrella Fee -£3,250
Income tax and Employers/Employee NI: -£20,492
Total Deductions: -£23,742
 
Take home pay: £41,258

Limited Company Option 

Julie - had previously worked through an umbrella company and decided that it was time to go limited, a number of her friends had already made the move; Julie used SJD Accountancy whose fees are £120 plus VAT.

After one year of working through her limited company, Julie reviewed her finances:

Contract Value Invoiced £65,000
Expenses £8,000

Julie's claimable expenses are a little higher than Steve's as they include her accountancy fees along with other expenses she can now claim as she's working through her own limited company. Click the following link to read SJD Accountancy's Contractor Guide to Expenses.
 

Accountants fee: -£1,340
Income tax, Employers/Employee NI and corporation tax: -£15,094
Professional Liability Insurance -£350
Total Deductions: -£16,784
VAT Flat rate scheme savings £1,446
Interest from bank account £360
Take home pay: £50,022

Both Steve and Julie are outside IR35, if Julie had been inside IR35 her take home pay would have been £46,076

Obviously, Julie had more paperwork to administer, however she feels the extra effort was worth the increase in her take home pay and control over her finances.

Working through your own limited company isn't right for everybody, especially those who are only planning to contract for a short period or those with low contract values. Also, as mentioned, there is some administration that you must personally take care of.

However, the administrative side doesn't take that long, and once you get into the swing of things it does become easier. Many people find working through their own limited company is extremely rewarding and would never go back. A testament to this is we very rarely hear of clients throwing the towel in and going back to using an umbrella company.

To see what's involved in working through a limited company verses an umbrella company visit our Limited vs Umbrella page.

For all other life stories, visit our Life as a Contractor Case Studies hub here, or click on the links below:

For an illustration of what you could be taking home visit our Limited company business calculator which includes full tax planning provisions.

If you have any questions about contracting or would like further advice please call our new business team on 01442 275789 or email newbusiness@sjdaccountancy.com.

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