I’m new to contracting and have just secured my first contract. I heeded your earlier advice and made sure to assess the contract for IR35. It passed.
At present, I’m working on how to manage my finances, and I’ve reached the conclusion that I’d prefer not to pursue the admin-heavy route of setting up my own personal service company. I think I’d prefer to work through an umbrella instead, but I’m frankly bewildered at the sheer number of suppliers to choose from.
So, my question is this: will my choice of umbrella service provider make a significant difference to my take-home pay?
To begin with, three cheers for getting your first contract and for choosing one that’s outside IR35. It’s an excellent beginning!
To be blunt, tax law is what it is – and this means that your choice of umbrella provider should not make an appreciable difference to your take-home income because they’re all covered by it. Alas, there’s no panacea or wizard’s wand for minimising your due taxes. With that said, the tax structures that umbrellas support in relation to IR35 will make a difference.
If you’d been caught by IR35, then you’d be in the same boat as all other contractors similarly affected. Like it or not, you’d be taxed as a regular, permanent employee under conventional PAYE, even though you’d get none of the statutory employment benefits that these employees enjoy (sick pay, holiday pay, maternity/paternity leave, etc.).
However, as your contract is outside IR35, you stand to pay much less tax if you structure your income through a limited company and receive your income in the form of salary and dividends.
You have two choices here:
Because you’re not keen on the admin burden of running your own micro-business, the second route might be a better one for you. You’ll find that some contractor solutions providers only offer the PAYE umbrella option, while others offer managed limited company options as well.
When you’re considering providers, look for what they include within their service as well as what their fee will be. Your take-home pay will not be significantly different from one provider to another in comparison to what your contracted pay rate is. My suggestion is to go with the company that you are most encouraged by – the one that you feel will offer you the best service.