There are many reasons why you might choose contracting through your own Limited company over permanent employment, and the one that is most often mentioned is a higher take home pay. This is usually true, assuming you’re outside IR35 and you get the right advice, but by how much? In this article we’ll compare a permanent salary to what you might take home as owner and director of your Limited company.
Limited company pay vs Permanent salary
As a director and shareholder of your company, you can pay yourself using a combination of salary and dividends. This means you’ll usually pay less tax and national insurance than you would if you received the full amount as salary, like a permanent employee would.
For example, below is a comparison between a Limited Company Director and a permanent employee, both earning £80,000 a year.
Income of £80,000 a year from being a Limited Company Director
Salary of £80,000 a year as a Permanent Employee
Net take home
As you can see, the Limited Company Director can expect to take home significantly more money than the Permanent Employee.
It’s not just about the money …
While your finances are important, it’s worth remembering that the choice of contracting as a career is usually about much more than how much money you take home. The Limited Company model is not appropriate for everyone, but for those who are suited to it, it can be extremely rewarding.
Being your own boss and building your company and your business represent a different outlook and lifestyle, and it could improve almost every aspect of your working life. Advantages include:
Your success relies almost entirely on your own ability and actions.
While you may work in an office, you have less reason to worry about office politics. With no “corporate ladder” to climb or line manager to impress, you’re ultimately judged on the quality of the work and the service you provide for your clients.
You decide when and where you work, whether to accept another contract with this client, and when you take a well-earned break.
Your career is in your hands, including your training and development and any changes of direction.
If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email firstname.lastname@example.org.