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Limited or umbrella company - income comparison

Posted Jul 15, 2009

One of the biggest decisions you will make when starting up as a contractor is whether to trade via a limited company, or an umbrella company.

Choosing your business structure

The choice you make will depend on a number of factors, including:

1) Do you want to set up and run your own business?
2) Do you want control over all your financial affairs?
3) Do you want to maximise your post-tax income?
4) Do you fall under the IR35 rules?
5) Are you a short-term contractor?

For most contractors, the level of post-tax income is one of the most important factors to bear in mind when choosing which business structure to trade under.

Limited or Umbrella Calculator

Phil Richards from BFCA Limited Chartered Accountants has kindly provided Contract Eye readers with a downloadable Excel spreadsheet, which shows you what your post-tax income will be depending on which business structure you choose (limited company, umbrella company, or PAYE direct with an agency.)

You enter all your business expenses and overheads, your income, whether or not you are caught by IR35, and the spreadsheet will calculate your tax liability depending on which business structure you choose.

In some cases, there is a considerable difference between the levels of taxation between business structures, so this tool should help you make an informed choice as to whether you join an umbrella scheme, or set up your own company.

It is worth saying that post-tax income levels are a very important, but not always decisive factor in choosing a business structure. We recommend you also read the non-financial factors in our limited or umbrella company guide.

Download the Spreadsheet

To download the .xls spreadsheet (579Kb), simply click here. A very accessible user guide is contained within the document.

You can also view a 4 minute video tutorial on how to complete the spreadsheet via YouTube.

Thanks to BFCA Limited Chartered Accountants for use of the spreadsheet.

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