Inside IR35 Limited Company Guide

Sometimes due to the contract and specified working practices you may need to work inside IR35. However, this doesn’t necessarily mean you shouldn’t work through a Limited company as there are still many benefits.

Obviously there are more tax benefits if you are working outside IR35 (which is fair enough considering the increased burden), however just because a specific contract is inside it doesn’t mean you should immediately turn to an umbrella company solution.

There are still quite a few benefits to operating inside IR35 and working through a Limited company vs using an umbrella company such as:

  • Take home pay should be slightly higher via a Limited company due to extra income gained from the Flat Rate VAT Scheme (click the link for a detailed breakdown of the FRS) which can often add thousands to your annual income, on a £100,000 contract it would add £2500 extra income. You can’t use the flat rate scheme if you use an umbrella company.
  • You only pay tax on 95% of your income rather than 100% via an Umbrella company, HMRC provide for a 5% allowance which is intended to help with the running costs of your company.
  • Umbrella company fees can be the same if not more than accountancy fees, many umbrella companies charge over £125+VAT per month and some even charge a percentage of your contract.
  • Contractors can make use of wider range of employer schemes such as: use of home expenses, cycle to work schemes, claim childcare vouchers and annual party allowance.
  • Just because this contract is inside it doesn’t necessarily mean other contracts that run concurrently and after, won’t be outside and you will have everything in place.

Due to the UK’s rather complex taxation system which includes various thresholds plus it’s likely that your expenses will be quite variable which does mean calculating take home pay isn’t always the simplest of processes. However, these are the various components that affect take home pay:

  1. Invoice value net of VAT
  2. Add any Flat rate scheme benefit
  3. Deduct 5% from the total (this is to cover the expenses of running your company, if you don’t expense the full 5% you’ll be liable for a small amount of corporation tax at 20%) 
  4. Deduct any expenses that you incurred in being able to do your job (travel and subsistence)
  5. Deduct any company pension payments
  6. Whatever is  left is your salary less employee NI and employers NI
  7. Add on whatever expenses and pension contributions you’ve made and this will be your approximate take home pay.

As an example, on a typical £100,000 per annum contract, with roughly £5,000 expenses and £5,000 pension contribution, take home amount will be roughly £65,000 (so around 65%), this is after you take into account the flat rate VAT scheme, employer’s/employees NI, income tax and any corporation tax on profits. Working outside IR35 this amount would be roughly 75% take home pay.

You may also want to read our pages on: 

If you are at all worried by IR35 or have any further questions please call our IR35 specialists on 01442 275789 or email newbusiness@sjdaccountancy.com. Alternatively, complete the below and we'll get back to you as soon as possible.

If you would like to have your contract reviewed please take a look our IR35 Contract Review Service.

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SJD Accountancy

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.
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  • 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.
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If you have any questions about contracting or would like any further advice please call our new business team on 01442 275789 or email: newbusiness@sjdaccountancy.com. Our new business team is open Monday to Thursday (8am to 8pm), Friday (8am to 7pm) and Saturday (10am to 4pm)

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.