The New Year is a great time to set new goals and reaffirm existing ones. It may also be the right time to make changes in your life and career where appropriate – including re-evaluating your take home pay.
One of the most important aspects of being a contractor or freelancer, alongside independence, work-life balance and flexibility, is take home pay.
Take home pay is important to many because as a contractor or freelancer, income is not guaranteed between contracts and there is low job security. Therefore, ensuring you receive the highest take home pay legally available to you improves your financial stability as an independent contractor.
It’s recommended to evaluate the efficiency of your payroll method regularly – not just at the beginning of a New Year – to ensure that you’re maximising your take home pay as much as possible.
Answering these questions will help you re-evaluate your take home pay for 2018:
1. Are you taking home what you thought you would?
It’s easy to get caught up in contracting, the holidays and general life and overlook the details of your pay and your business’ position.
Going over your invoices, payslips and distributable income (if you have a limited company), ask the question ‘am I taking home as much as my accountant/agency/umbrella company said I would be?’
If something looks amiss, you should have a consultation with your accountant for reassurance. If all turns out to be well, at least you’ve gained a greater understanding of your situation, and it never hurts to check in with your accountant.
2. Can you maximise your take home pay even further?
If you’re a director of a limited company, this question will best be answered by your accountant.
Usually, operating a limited company outside IR35 is the most legally tax-efficient way to work as a contractor or freelancer. This is due to the ability to split income between wages and dividends, resulting in lower tax bills. Although HMRC is trying to diminish this benefit, there are still ways that you can take home more through a limited company.
Look at your expenses – are there any additional expenses you can claim through your limited company to reduce Corporation Tax? Are you able to put aside more funds in your pension pot for a lower tax bill?
Have a tax planning discussion with your accountant to make sure you’re on the right path to maximising your income. With the self-assessment deadline coming up on 31st January and the new tax year starting on 6 April, there is no better time to get started.
3. Are you using the right payroll solution?
Finally, make sure you are using the right payroll solution for you, whether it’s running your own limited company or working through an umbrella company.
There are a few instances whereby you may need to confirm whether your current setup is best for you and your working circumstances. These include:
- Starting a new contract
- Renewing a contract and/or changing terms of a current contract
- Changing to a new rate of pay
One simple way to gauge whether you could see a change in take home pay with a different payroll solution is by using a contractor take home pay calculator.
A take home pay calculator can give you a basic illustration of your take home pay when you operate via your own limited company versus working through an umbrella company. A take home pay calculation takes into account salary, dividends (if applicable) and taxes.
Try our contractor take home pay calculator to compare your potential take home pay through a limited company vs umbrella company.
Would you like help evaluating your current take home pay, and assessing where and how you can maximise your earnings? Use our take home pay calculator or speak to us for an even more detailed calculation – with no obligation.
Our guide ‘Limited or Umbrella’ can also help you understand the true pros and cons of the payroll options available for contractors and freelancers.