There are a few payroll options to choose for your contractor business, the two main options being to contract via your own limited company or work through an umbrella company.
Umbrella Company
Working through an umbrella company is the simplest way to be paid. Registering with an umbrella company is fast and straightforward, and once you sign up to an umbrella company you effectively become its employee. Through this payroll option, there is no need up your own business or handle any administration besides submitting timesheets. Your umbrella payroll provider will handle all of your tax obligations including income tax and National Insurance. With this option, you also don’t have to worry about IR35 legislation as it will not apply.
However, umbrella companies are not the most tax efficient and if you have the opportunity, contracting via a limited company could increase your take home pay.
To find out more about Churchill Knight Umbrella and the benefits available to all of our clients, please click here.
Limited Company
Setting up a limited company as a contractor means that you become the director and shareholder of a business. You can pay yourself through a combination of salary and dividends, which are distributed to a business bank account as after-tax profit. Tax rates for dividends are lower and are not subject to National Insurance, which is one reason why you can see a higher take home pay through a limited company.
Limited companies require documents to be filed and paperwork to be done fairly regularly, and if you choose this option you should be able to have a business bank account. However, this option can be very rewarding as clients and agencies tend to see registered businesses as more trustworthy, and there are also more growth opportunities by having your own limited company.
The option that is best for you depends on your contract terms, length, your rate and your industry. If you work in the public sector, an umbrella company may be best option if you are subject to IR35 – on the other hand, if you have a higher rate of pay and will be contracting for a longer period of time a limited company is likely the better option.
We can help you weigh the pros and cons of each option and ultimately provide you with either of the above accountancy services. Contact us today to get started.
To see the Churchill Knight contractor accountancy services, please click here.