Contractor doctor: does choice of umbrella significantly affect take home pay?
Dear Contractor Doctor,
I've just landed my first contract, yippe! I've taken your previous advice and had the contract checked for IR35 and it passed. Double yippe!
I'm now in the process of choosing a way to structure my finances, and would prefer to go down the low hassle route and avoid setting up my own limited company. However, there seem to be so many umbrella suppliers to choose from.
The question is does it really make any significant difference to my take home pay which one I choose ?
Thanks in advance. Great site!
Contractor Doctor says:
Firstly, well done on making the plunge and landing your first contract. Not only that but also outside IR35. A perfect start!
The provider you choose shouldn't make any significant difference, since tax law is tax law, regardless of who does it for you. There is no magic bullet when it comes to minimising taxes! Saying that, the tax structures they support with respect to IR35 will however make a difference.
Contractors caught by IR35 have no other option than to be paid all their income under normal PAYE, exactly the same as in permanent employment.
Contractors like yourself, outside of IR35, can structure their income using a limited company and receive income via salary and dividends, which means paying much less tax.
For the limited company route you can either start your own or take a managed limited company option from a provider. You will probably be better off with the later as you wish to minimise the hassle involved. Some providers only offer the PAYE option, whilst others offer both PAYE and managed limited company options.
When you start comparing the companies it will come down to what's included with their service and how much they charge. The final take home amounts will vary little in comparison with how much you are earning, so it would be advisable to choose a company that you are most comfortable with to provide a top level of service.
Good luck in your contracting.