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Will be starting my first IT developer contract soon lasting 3 months, 260 per day, I don't intend to have another contract until at least 9 months after this first contract. Having read in depth the Statutory Residency Test I believe I am no longer a UK resident explained here.

If I use a Limited Company I believe I will be acting outside IR35 and therefore will be able to claim expenses.

If I use an Umbrella Company I think I will fall under the new legislation as of April 2016 that all contractors using an agency or umbrella company are by default categorized as under supervision, direction or control (SDC), thus preventing me from claiming expenses.

Below is a breakdown of the two options. I am not sure about many of my estimations and could have missed out some key numbers. I'm looking for help for filling in the below projections:

Limited company:


| Cost/Gain              | Value                     |
|------------------------|---------------------------|
| Before tax             | 15600 = (260 * 60)        |
| Flat rate gain         | 16458 = 15600 * 1.055     |
| Expenses Claimed       | 17058 = 16458 + (200 * 3) |
| Accountancy costs      | 16458 = 17058 - 600       |
| Corporation insurance  |             ?             |
| Dividends tax          |             ?             |
| ---------------------- |                           |
| TOTAL                  |             ?             |
  • For the accountancy costs. I estimate £318 per year = 3 months active (£70pm) + 9 months dormant (£12pm). But I could be way off.

Umbrella company:

| Cost/Gain            | Value                                     | Comments                    |
|----------------------|-------------------------------------------|-----------------------------|
| Before tax           | 16120 = (260 * 62)                        |                             |
| Accountancy costs    | 14830 = 16120 * 0.92                      | Comes to £1289              |
| Corporation tax      | 14064 = 11000 + ( (14830 - 11000) * 0.8 ) | Tax on anything over £11000 |
| Expenses not claimed | 13164 = 14064 - (300 * 3)                 |                             |
| -----------------    |                                           |                             |
| TOTAL                | 13164                                     |                             |

So the question is, will the Limited Company missing values make the Limited Company more or less profitable than the Umbrella?

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First off, if you need full financial profile information to compare between Contractor and Permanent income, I'd have a look at http://www.contractorcalculator.co.uk - they have a range of calculators, including full financial profile info for limited companies, and dividends calculators for how you run your pay scheme.

Secondly, umbrella companies are seen more and more as an immoral tax dodge by the UK government, to the point that if you work in financial services, you will NOT be hired if you work through an umbrella company.

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  • I think you mean personal services company not umbrella companies
    – Pepone
    Apr 25 '16 at 20:43
  • No, I definitely mean umbrella companies. These companies use various tax shenanigans (including offshore trusts as described in the Panama Papers) to ensure that contractors only pay around 17% ETR. Limited company (PSCs) have an ETR around 35% if no expenses are claimed. PSCs can be considered a tax avoidance vehicle if the IR35 test is failed - at that point, all of the income is taxed like standard PAYE income. However, genuine independent contractors operating through a PSC (i.e. not disguised permanent employees) have nothing to fear from HMRC and IR35. ETR = Effective Tax Rate
    – toadflakz
    Apr 26 '16 at 8:10
  • I never got that good a tax rate when I was using an umbrella company its the personal company that the HMRC go for unless of course your a self employed lawyer or accountant :-(
    – Pepone
    Apr 26 '16 at 20:40
  • @Pepone: Then unfortunately, you were quite seriously exploited. :-/ The site contractoruk.com/calculators lists an umbrella calculator which showed the lowest ETR for umbrella is about 15% according to it (obviously differs from umbrella to umbrella). I run my own Ltd for IT contracting and as long as you stick to IR35 protocol and are a genuine contractor (not a shadow perm) you have nothing to fear. And I do pay NICs etc because I feel to do otherwise is immoral.
    – toadflakz
    Apr 27 '16 at 7:50

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