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TaxRobin
TaxRobin, Tax Consultant
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I am going to start taking some contract work while still in

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I am going to start taking some contract work while still in full time employment. As far as I can tell, this work falls within IR35 and this will be a long term situation. Should I form a Limited company or use an umbrella company?
Submitted: 1 year ago.
Category: Tax
Expert:  TaxRobin replied 1 year ago.
HelloThere are some advantages and disadvantages for each.With an Ltd. this is the most tax efficient way of working. You can generally claim a wider range of expenses and you keep complete control of your financial affairs meaning you do not have to risk your money with any third party administrator.Using a PAYE umbrella all tax and NI is deducted before you receive your money, so you will have no further taxes to pay. They are best for short term contracts. These can be good if you are unsure if contracting is for you and you're really just in between permanent jobs.The negatives:An Umbrella though can be the most expensive way of working. You will receive a salary that is subject to full PAYE Tax and NI, it's just like being a permanent member of staff. As for Ltd. can be costly if you contract for a very short period of time, then go back to permanent employment only.In summary, an Umbrella is not as tax efficient a business structure to use as the limited company route, but it does represent a ‘hassle free’ way to contract. If your contract work is subject to IR35 , then the benefits of contracting via your own company are vastly reduced, and an umbrella company may be the preferred.
Customer: replied 1 year ago.
If I choose the Ltd option can you confirm exactly what tax I would need to pay? Corporation tax? How are my earnings after that taxed? Are there any VAT considerations and does any of this affect earnings/taxation of my full-time employment salary?
Expert:  TaxRobin replied 1 year ago.
Your company, being based in the UK, would pay Corporation Tax on all its profits from the UK and abroad.The tax rate is 20%.This does not effect your salary from full time employment.You must register for VAt if your turnover is more than £82,000 (the ‘threshold’) in a 12 month period.You must register within 30 days of your business turnover exceeding the threshold.You can choose to register before that. You then pay any VAT form the date you register.
Customer: replied 1 year ago.
OK, my final follow up question: Do I pay income tax on my salary from the Ltd after Corporation tax?
Expert:  TaxRobin replied 1 year ago.
As the director of your limited company, you are treated as an employee for tax purposes. This means that you must register with HMRC to use PAYE to pay your salary.You will need to deduct income tax, Class 1 (Employer’s Contributions), and Class 4 National Insurance contributions, or NICs, from your salary, and forward these to HMRC.Under IR35 you will not be able to receive dividends and will have to pay full employer’s and employee’s NICs on the whole of your income.
Expert:  TaxRobin replied 1 year ago.
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