We have compiled this list after listening to the questions which contractors have asked us – and answering them of course – over a number of years.
How much can I take home as a contractor?
If you are a contractor working through your own limited company your take home will be anywhere between 75% – 80% of your contract value, for example:
|Daily rate||Take home|
|£200||Between £150 and £160|
|£300||Between £225 and £240|
|£400||Between £300 and £320|
|£600||Between £450 and £480|
Through an umbrella company, your take home will be around 60% – 65% of your contract value. The two options, therefore, compare as follows:
|Daily Rate||Umbrella Company Monthly Take Home Pay||Limited Company Monthly Take Home Pay||Monthly Savings by Going Limited|
These figures are approximate and do not take expenses into account.
The main savings with a limited company over an umbrella are based around National Insurance, the Flat Rate VAT Scheme and the benefit of a wider range of expenses.
Any accountant or tax adviser will tell you that working through your own limited company is the most tax efficient way of working, which means that you keep more of your hard earned money.
What is best for me – limited or umbrella?
Ultimately, the decision is up to you; working through an umbrella company is simpler than working through your own limited company, but you will take home less money from your contract. As a general rule, if you earn more than £25,000 per annum, or if you are on a contract for more than three months and intend to stay contracting for the foreseeable future, then the limited company route would be best for you
How do I switch from umbrella to limited?
Switching from umbrella to limited is simple. All you need to do is form your limited company, which will take about 5 minutes on our website, open a business bank account, and appoint an accountant. As soon as your company is formed you can stop working via your umbrella company and start trading through your limited company.
Is there a lot of paperwork?
Paperwork should take no more than around 15 – 20 minutes per month. This includes sending invoices, recording expenses and sending cheques to HM Revenue and Customs, which isn’t much more than if you were to use an umbrella company.
What expenses can I claim?
You can claim anything that is wholly and exclusively for the purposes of your business. This actually includes numerous things such as accountancy fees, business travel, postage, insurance, salaries and Employer’s NI contributions. For a more detailed list of what you can claim for, please download our free guide to contractor expenses.
What if I decide to go permanent?
No problem, simply close your company or leave it dormant. We can help you understand what’s best for you if the situation arises
Do you have any free guides?
We have an extensive range of free guides including:
- Step-by-step Guide to Contracting Through Your Own Limited Company
- Guide to Contractor Expenses
- Plain English IR35 Advice
- Comprehensive Contractors Guide
- Step-by-step Guide to Moving from Permanent to Contracting
What umbrella company would you recommend if I chose this route?
If you are going to contract through an umbrella company then we would highly recommend our award-winning sister company Parasol.
Is there a good time to form a limited company?
No, anytime is a good time. It’s a myth that April or the beginning of the year/month is best, as it really makes no difference at all. But if you are not planning on working through your limited company straight away, then you are better off waiting until a couple of weeks before your contract starts. It is better to do it in advance of your contract start date, so you have everything ready and can focus all your energy and time on your new contract.
Take home pay calculators – do they really give an accurate amount?
SJD, in line with most other firms, has a calculator on its site. However the major problem with all calculators is that in reality there just isn’t an exact way to predict somebody’s take home pay who works through a limited company, there are just too many variables.
The good news is that if you do decide to work through your own limited company you can feel safe in the knowledge that you will be legally working in the most tax efficient way possible. There exists no better or more tax effect way of working, it is simply impossible to take home any more. Typically if you are a contractor working through your own limited company your take home will be anywhere between 75% – 80% of your contract value whereas through an umbrella company your take home pay will be around 60% – 65%
If you work through an umbrella company you will pay full NI and income tax, just as the same as when you were a permanent employee, plus employers NI as well. And you won’t be able to claim the same broad spectrum of expenses as you can through a limited company, all this results in a lower take home pay.
Additionally, as all accountants are governed by the same rules and regulations it shouldn’t matter tax wise which accountant you use, providing that is they are experts in working with contractors.
By working with your tax expert at SJD you can rest assured you will be getting the best advice from the UK’s largest multi-award winning firm, plus with offices across the UK you can always arrange a face to face meeting with your tax expert (without charge) without having to drive hundreds of miles.
Can I still pay myself monthly?
Yes. But better still, as it’s your company you can pay yourself whenever you like – although most contractors choose monthly. Your accountant will help you to understand your tax liabilities and how expenses affect your tax bill and take home amount.
What are dividends?
Dividends are just a distribution of your company’s profits to its shareholder (you). You do not have to pay National Insurance on any dividend payments so this is a very tax efficient way of receiving income from your company.
How often can I pay dividends?
Dividends can be paid as often as you choose. It is a myth that contractors who pay themselves dividends monthly are more likely to be caught by IR35. They are your profits so you can take them when you like, as long as you leave enough money behind to ensure you can meet your tax obligations
Do I still have to pay you if I don’t work for a month?
Yes, just like your car insurance, our monthly fee is just our annual amount broken down into 12 bites sized payments. However, if you decide to leave SJD at any time, all you need to do is to inform your accountant within a 30 day notice period, who will confirm your leave date with you. There are no exit penalties.
What is IR35 and what are it’s implications for me?
IR35 is much less of an issue than it first seemed. Basically, it tries to differentiate between genuine contractors and “disguised employees”. It has been found that in the overwhelming majority of cases contractors are NOT “disguised employees”. Providing you have a contract that is outside IR35 (we can review this for you and confirm) – and your working practices reflect that of a standard limited company and not that of an employee – you will be fine.
Investigations into IR35 cases completed by tax specialists which the Professional Contractors Group works with (of which SJD is one) totalled 1,468 to December 2008. Of these, 1,462 were won by contractors and just six cases were won by HM Revenue and Customs.
If your contract and working practices give the impression that you are inside IR35 legislation, you will have to pay full tax and full National Insurance, instead of the usual salary and dividends from the profits of your company, as well as reduced expenses. This basically means that you will earn less money.
If I am inside IR35, is there any benefit in trading through my own limited company?
Even if your contract and working practices are inside IR35 you can still:
- Claim travelling and accommodation expenses
- Claim 5% of your turnover
- Benefit from the flat rate VAT scheme which, on an average contract, will save you around £2,000 a year
- Receive interest on the funds held within your own company.
So yes, from a financial point of view it still could be worth it. Also, any other contract work you do could also be put through your existing company.
How do I set up a limited company, how long does it take and when can I start to pay myself?
You can form your limited company in five minutes through the SJD website and your company is usually set up within two hours. There is a one off fee of £125 plus VAT and this also includes helping to organise a company bank account and VAT/PAYE registration. And of course, this is a claimable expense through your company.
You are ready to receive funds as soon as your business bank account is open. So you can simply transfer money from your business bank account into your personal bank account each month, or whenever you like. Your accountant will help you to understand how much to put aside for tax and what expenses you can claim, as well as answering any other questions that you may have.
What insurances will I need?
You’ll probably need:
- Professional Indemnity Insurance which costs around £165 per annum. This provides financial protection for your company and is designed to meet the cost of defending claims made against you.
- Public Liability Insurance which costs £115 per annum. This protects you against third party claims for injury or damage to people or their property.
Both insurances are claimable expenses through your limited company.
How much does SJD Accountancy charge?
SJD Accountancy offers a complete limited company package which includes:
- Year-end accounts*
- Corporation tax
- Payroll bureau
- Dividend administration
- Dealing with HM Revenue and Customs and Companies House
- Quarterly VAT Calculations
- Support with Annual Returns
- Personal Taxation
- Access to your own dedicated accountant* for all help and advice
- Free bookkeeping software
This is all provided for a fixed fee starting from £120 plus VAT per month – it is also, of course, a claimable expense!
Check our packages for more detail.
Why should I choose SJD Accountancy?
SJD Accountancy is the UK’s largest specialist provider of fixed fee, limited company accountancy services to contractors and freelancers. We are the only national specialist firm of accountants with offices across the UK, are deemed IPSE Accredited Accountants and are the chosen accountancy firm for nearly 15,000 clients.
We have been acting for contractors since 1992 and we are the most recommended accountancy firm on the Internet. We also have more qualified staff than any other specialist firm, with qualifications covering the following major tax and accountancy bodies: ATT, AAT, CTA, ACCA, CA, ACA and FCCA.
SJD Accountancy have won numerous awards including;
- The British Accountancy Awards ‘Accountant of the Year’ winners in 2011, finalists in 2014 and highly commended in 2012.
- Winners of the Accountancy Age Awards for Excellence in 2007 and 2004, finalists in all years from 2003 to 2010.
- Eight time winners of the ‘Best Contractor Accountant’ award voted for by visitors to Contractor UK 2014 to 2007.
- Winners of the “Sunday Times Best Small Companies to Work For in the UK” Award, achieving the highest position ever for a firm of accountants.
- ‘Excellence in Customer Service’ – Finalists National Chamber of Commerce Awards 2008.
- ‘Business of the Year’ – Finalists National Chamber of Commerce Awards 2008.
- ‘Outstanding Three Star Status’ – Best Companies Accreditation 2009.
- Award for ‘Customer Commitment’ at the Institute of Customer Service UK Customer Satisfaction Awards 2011.
- Deemed IPSE Accredited Accountants and fully MSC compliant.
- UK Customer Experience Award for ‘Best Professional Team of the Year’ 2011.
Am I tied into a contract with SJD Accountancy
No. There are no entry fees, exit fees or tied-in fees.
How do I appoint SJD Accountancy?
Appointing SJD Accountancy couldn’t be simpler and takes just 30 seconds! Either fill out our online client agreement form or fill in the form below.