£1k pa saving from using a Limited Company inside IR35? £1k pa saving from using a Limited Company inside IR35?
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  1. #1

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    Default £1k pa saving from using a Limited Company inside IR35?

    Hi,

    I have been contracting inside IR35 for a while now. I pay an umbrella company £100 per month for their services (£1200 pa). I was considering going down the limited company route on the basis that I will save approx £1k per annum (£1200 of umbrella fees - £200 of limited company fees).

    I was working on the assumption that there would be approx £200 per annum of fees associated with running a limited company:
    - company registration fee
    - business bank account (is this a must or can I use my personal account?)
    - have I missed any fees for running your own limited co?

    Would appreciate if someone can confirm whether I have done my calculations correctly i.e. that I will save c. £1k pa by moving to a limited company.

    Thanks.

  2. #2

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    Quote Originally Posted by KaiProctor View Post
    Hi,

    I have been contracting inside IR35 for a while now. I pay an umbrella company £100 per month for their services (£1200 pa). I was considering going down the limited company route on the basis that I will save approx £1k per annum (£1200 of umbrella fees - £200 of limited company fees).

    I was working on the assumption that there would be approx £200 per annum of fees associated with running a limited company:
    - company registration fee
    - business bank account (is this a must or can I use my personal account?)
    - have I missed any fees for running your own limited co?

    Would appreciate if someone can confirm whether I have done my calculations correctly i.e. that I will save c. £1k pa by moving to a limited company.

    Thanks.
    1) Accountants charge £1000 or so to do a company accounts so why do you think you can do it for £200?

    2) Equally if you can find an agency that will work with inside IR35 contracts and your own limited company I would be seriously surprised as most agencies aren't in a position to do the appropriate calculations to deduct the appropriate deemed tax payments.

    3) The umbrella fee is £100 a month before tax is deducted - when you are comparing umbrella companies the actual difference between umbrella fees on you end pay pocket is probably £20 a month at most (which you can make up in say discounts on shopping / gift cards).

    4) Finally even after points 2 and 3, a good umbrella company should be able to offer salary sacrifice into a pension scheme (you can't do that with deemed payments from agencies). If you throw a bit into the pension it's easy to get a situation where for every £1000 - £500 arrives in your pocket, £165 goes into the pension and only £335 or so goes in tax.
    Last edited by eek; 8th November 2020 at 15:08.
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  3. #3

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    No, your calculations are wrong, because you will need an accountant and an accountant charges roughly the same as an umbrella.

    No, you cannot use a personal bank account.

  4. #4

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    Have you asked if they will allow this. Many won't as it leaves the agency open to risk.

    I wouldn't even bother doing the calcs. One grand just to be able to sit back and watch 10s of K come in without having to life a finger? Cheap as chips.
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  5. #5

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    Quote Originally Posted by KaiProctor View Post
    Hi,

    I have been contracting inside IR35 for a while now. I pay an umbrella company £100 per month for their services (£1200 pa). I was considering going down the limited company route on the basis that I will save approx £1k per annum (£1200 of umbrella fees - £200 of limited company fees).

    I was working on the assumption that there would be approx £200 per annum of fees associated with running a limited company:
    - company registration fee
    - business bank account (is this a must or can I use my personal account?)
    - have I missed any fees for running your own limited co?

    Would appreciate if someone can confirm whether I have done my calculations correctly i.e. that I will save c. £1k pa by moving to a limited company.

    Thanks.
    Umbrella and LtdCo are completely different legal and accounting entities that differ by a lot more than just costs. You can pay less with a LtdCo if you can do all the accounts yourself, however, if you were able to do this you wouldn't need to ask the question. LtdCo is probably more expensive if you have to leave everything to an accountant. Umbrella is mostly fixed fee. You should stick to Umbrella.

  6. #6

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    Thanks all - that has given me some clarity. A vital piece of info that I forgot to disclose is that I am an accountant. However, I'm a commercial accountant and haven't touched personal taxes since I was a trainee a good decade ago, although it's something I could turn my hand to if I got my old textbooks out.

    My agency does allow me to use a limited company on my existing contract inside IR35 but it sounds as if that is rare and may not be the case on my next contract.

    I think you've helped me make my mind up to stick with the umbrella for now - primarily on the basis that my next contract is unlikely to allow the use of a limited company inside IR35 so it's not worth going through the learning curve of setting up the limited for now.

    Thanks for your help.

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