Explaining the details of PAYE Umbrella and a Limited Company

Explaining the details of PAYE Umbrella and a Limited Company

The complications of a PAYE Umbrella and Limited company are not the most well known and easy facts in the world, and there is plenty of mis-information about it, so let’s take a look at the key points and differences of both.

PAYE Umbrella
This means that the contractor is merely an employee of the umbrella company and usually turns in the time sheets for the company, enabling the company to collect the final payment from the client. The PAYE employee of course, does not earn all of the money paid by the client and is just paid a certain amount less than the client’s payment by the company.

But the employee is permitted to receive a few basic expenses under the law. This is sometimes used by Umbrella companies in order to avoid taxes and maximize their profits. Numerous companies have done this in the past by showing fake expense receipts for their employees, and putting them in the risk as well. Such practices worked fine for some time, but now Inland Revenue has started clamping down on companies engaging in such activities, prompting them to use specialist contractor accountants in UK. As a general rule, the take home pay of the employee when working in a contract with an umbrella company is 60-65% of the contract fee.

Limited Company
A limited company is only valid when registered and properly handled, rather than just any one-person company that likes to call itself one. When a contractor wishes t form a limited company, they need to register a bank account in the company’s name, and there are a number of complications of payments that one needs to make to themselves in the form of salaries and dividends. Employing a good contractor accountants London is best to ensure there are no catastrophic mistakes in your finances.

Having your own limited company gives a contractor a lot of freedom and choices that they might not have otherwise. Regardless of whether the limited company has a contract with the client or another agency, they are allowed to claim tax-free expenses in a number of ways ranging from travel to hardware and software. There is also a sizable difference in the percentage of contract cost you can actually take home. According to various estimates, your own limited company allows you to keep roughly 75-80% of the contract.

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