Using an Umbrella company has become a whole lot less effective and efficient from since April 2016, when HMRC introduced new legislation to stop contractors claiming tax relief on travel and subsistence expenses.
If you earn £250 per day then it is likely you will only be able to retain up to about 65% through an umbrella company. However, going limited would net you around 84%
There main difference is that when you use an Umbrella Company you become an employee of the Umbrella Company and all of your contract income is subject to PAYE and NI. You can also claim some allowable expenses which are reimbursed to you tax free, instead of paying you this sum as salary. This model is only tax efficient if your contract rate is lower than £20 per hour or £160 per day.
If you use your own Ltd company or PSC (Personal Service Company), you become a director and shareholder of the company and pay yourself a small salary, and the rest as dividends. Using a Ltd company is much more tax efficient, if your rate is above £160 per day or £20 per hour.
Becoming a director of a Ltd Company does come with some responsibilities, but that’s what we’re here for. At Pulse Accounting we take care of all of the admin for you. You’ll almost never need to send anything to HMRC or Companies House. We do all that for you. And if you do need to do anything we’ll let you know in plenty of time. So its much easier than you might think and you’ll be much much better off.