A Guide to Ltd Company Take Home Pay
The only thing that you can be really certain about is that if you are the Director of your own Limited Company and you do everything legally and properly, then your take home pay will be the highest it can possibly be in the UK, compared to any other financial/employment model currently available.
Exactly what you will take home after deductions depends on a whole host of factors that will be different for different people. Your personal circumstances do have a bearing on the amount – so be cautious of anyone who tells you any different.
What will your take home pay be? 75% of your income? 80%, 85% or even 90%?
Read the guide below for examples of all the different variations and/or contact us today for a free personalised assessment just for you!
Some accountants provide guidance on their websites or through generic information sheets about how much better off you will be, specifically, if you operate either through PAYE or with you own Limited Company. Whilst PAYE is quite straightforward, there are all sorts of permutations that can influence exactly what you might take home if you are a Director of your own Limited Company.
On that basis, there really is no value in having an online calculator to give you an accurate example of what YOU will be taking home. We say this because the calculation will depend on too many factors, a few examples are listed below:
Example 1 Will you get a 12.8% Employers’ Uplift?
Employers’ NI is 12.8% in 2009/10 and many Contractors already have this uplift included in their contract rate. So when comparing rates of pay and thus take home pay you will need to understand this fact – will you be able to negotiate the uplift or is it already included.
| Contract Value | 30,000 | 50,000 | 70,000 |
| Take Home with Uplift of 12 .8% | 26041 | 42664 | 55051 |
| Take Home with NO Uplift of 12 .8% | 23008 | 38018 | 49742 |
Example 2 Will you draw all the money out as it is earned?
You are able to draw all of your money down, after a provision for tax, as you earn it through a Limited Company. However, one of the distinct advantages over PAYE and particularly over Umbrella companies is that you do not HAVE to do so. If you wish, your Limited Company is able to invoice for work done, but the Director/Shareholder of the company (you) do not need to take your portion out immediately.
This gives rise to some straightforward tax planning where drawings ‘may’ be able to be allocated across tax years, either a previous tax year or a later tax year, which can dramatically change take home pay, particularly for earnings over £50,000 per annum.
Particularly for high earners - those above £50,000 per annum, there may be times when one does not need to draw down any money at all out of the Limited Company. Clearly, Corporation Tax will still be payable on the profits of the company, but no personal tax at all may arise of nothing is 'personally drawn out.
Wellers Contractors are familiar with these circumstances and are well placed to advise on the best course of action.
Example 3. Are you operating within IR35
IR35 is the name of the press release brought out in 1999 to distinguish between genuine Contractors and ‘employees in Disguise’ – see the brochure on IR35 A Guide to IR35 on the website. Clearly it is important to get one’s IR35 status absolutely correct. If not, many of the benefits of having a Limited Company may be lost.
| Contract Value | 30,000 | 50,000 | 70,000 |
| Take Home outside of IR35 | 26041 | 42664 | 55051 |
| Take Home inside IR35 | 21588 | 34332 | 4554 |
Example 4. What mix of salary/pension contributions do you have
One’s take home pay is influenced by one’s personal circumstances. Owning a Limited Company affords various opportunities for tax planning to increase your take home pay.
On the other hand, it may be personally desirable to contribute to a pension fund through the Limited Company. This will reduce the tax bill of the company, but also reduce the take home pay of the individual Director of the company. This is hardly a bad thing, as there exists a pension that never existed before.
The point here is that, yet again, one's personal circumstances can influence one's take-home pay and there is no 'average' person out there that could be helped by some simple generalisations.
Example 5: It depends on other sources of income you may have!
Depending on the other sources of income that you have will determine your take home pay with a Limited Company.
If you have other sources of income you may well have used up personal allowances as well as basic rate tax bands so that to fully appreciate your take home pay this must be taken into account.
In the first 6 Months of a tax year, some individuals may not have worked before and thus we can take advantage of full annual Personal Allowances and Basic rate Bands to minimise the tax liability.
On the other hand, some Contractors may well have worked in the same period (the year the Contract starts) and could have earned any amount from just a small amount to an amount that uses up the whole basic rate band. Without knowing exactly what the figures are in the 1st year of the Limited Company contract, irt is impossible to tell exactly what the after tax take home pay figure will be.
All you can be certain of is that, whatever the circumstances, Wellers Contractors are ready, willing and able to be able to give you the best advice.
Example 6. Will you be VAT registered
Your Limited Company may register for VAT and thus claim back any input VAT on items purchased by the Ltd Company for business purposes. Most companies would probably spend at least £2,500 on allowable purchases (for VAT purposes) with £372 of associated input VAT.
| Contract Value | 30,000 | 50,000 | 70,000 |
| Take Home with VAT registration | 26334 | 42884 | 65271 |
| Take Home with NO VAT Registration | 26041 | 42664 | 55051 |
Example 7. Will your VAT registration be on the Flat Rate Scheme
Normal VAT Registration may not get you the most for your take home pay. The Flat Rate scheme exists for companies with a turnover of less than £150,000 per annum (2009/10). Depending on your occupation, different rates of will be applied to how much of the VAT that your company charges has to be paid over to Customs & Excise.
As you would expect, Wellers Contractors always recommends, where possible, the Flat Rate Scheme, and ALL of the work associated with this, from initial Registration, VAT returns and ultimately de-registration is included within the standard charges.
| Contract Value | 30,000 | 50,000 | 70,000 |
| Take Home with Flat Rate of 12% | 27960 | 45064 | 58410 |
| Take Home with No Flat Rate | 26041 | 42664 | 55051 |
As you can see there are so many variables that a simple on line calculator will not be able to take into account your personal circumstances which is why we recommend meeting with us to ensure you understand all of the options available to you and then carry out a bespoke calculation to make sure you manage your affairs to take home the maximum available.
Wellers Contractors Ltd is a wholly owned subsidiary of Wellers Accountants, a firm that is regulated by the Association of Chartered Certified Accountants (ACCA) and a legally binding Engagement Letter is provided for all clients as well as detailed terms & Conditions.
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Download the Guide to Ltd Co Take Home Pay in PDF format here »
