Getting paid through Umbrella or Limited Company? What is best?
Let us assume that you work as a contractor through an agency and you get paid £30,000 per year. How much tax will I have to pay as an employee through the Umbrella, and what tax will I have to pay if I setup my own Limited company.
Working as employee under Umbrella:
Less Personal allowance £11,000
Taxable income £19,000
Income Tax 19,000*20% = £3,800
Ni tax 21,940*12%= £2,632
Total Tax paid £6,432
Taken home after tax £23,568
Working as Limited Company:
Less Salary £8,060
Net Profit £21,940
Assume no expenses to charge
Corporation tax 21,940*20%= £4,388
Retained profit £17,552
Take all as Dividend
Tax payable 17,552 less (5000+2,940) £9,607
Tax payable on Dividend £9,607 * 7.5%= £720
Total Tax paid £4388+720 = £5,108
Taken home £24,892
Total tax saving as Limited Company £6,432 – £ 5,108 = £1,324
Don’t forget under the company there will be some expenses which this will reduce corporation tax even further.