Getting paid as a contractor

Limited Company Contractor

A limited company is a business that’s seen as being completely separate from the owner, which means there isn’t as much personal risk as some people think.

It’s an ideal route for those who wish to have complete control over a business and their career, are in it for the long term, expect to earn over £25,000 per year and are happy to take on the additional responsibilities that come with running a company.

Read our Should I set up a Limited Company? page for more information.

When it comes to getting paid as a limited company contractor, there are a couple of different options, for example:

Paying yourself a set salary each month means that you not only have a stable income at a fixed amount but it is also offset against your company profits and therefore will help to reduce your Corporation Tax liability.

Most directors will choose to pay themselves up to the National Insurance threshold so that they take home more of their pay, and above the lower earnings limit so that earnings will still count as a qualifying year toward the State Pension

It’s common for a limited company contractor to pay themselves a combination of salary and dividends.

A dividend is a payment drawn out of the company from its profits which is then given to its shareholders. It doesn’t attract National Insurance, making them a more tax efficient method of paying yourself through your company, however, they are taxable depending on certain factors.

Take a look at our Contractor Guide to Dividends page for more information on this.

Limited Liability Partnership

Similar to a limited company, a Limited Liability Partnership (LLP) is when two or more people come together to run a business.

Many people will choose to join up with a business partner to not only put their skillsets together but to spread the level of risk too.

An LLP must have at least two ‘members’ and if there are more than this, then there will always be two designated members who will have more responsibilities than the others, such as registering the business with HMRC and keeping accounting records.

LLP members decide amongst themselves how they divide profits and when to pay them out.

Sole Trader

A sole trader runs their own business as an individual, however, unlike a limited company contractor where you would be seen as a completely separate entity to the company with a separate bank account etc, a sole trader will be personally liable for any losses incurred.

You may find our Sole Trader Take Home Pay page useful if you’re thinking of this route.

Being paid as a sole trader is simple – you will invoice the client directly and you can choose whether this goes into a business bank account to transfer over to your personal one, or to have it paid straight to you.

Umbrella Company

An umbrella company will employ a temporary worker on behalf of an employment agency and the agency will then provide the services of the worker to their clients – it is effectively the ‘middleman’ between an umbrella company and their client.

As an umbrella company contractor, you will have the freedom and flexibility that comes with being self-employed combined with some employee advantages too, such as holiday pay, annual leave and not having to file your own taxes.

You won’t however, be entitled to certain self-employed benefits, such as business expenses. Our Umbrella Take Home Pay page will tell you more about this.

When it comes to getting paid, the umbrella company will provide you with a payslip – they will pay you for the work you do for an employment agency’s client and will deduct any income tax or National Insurance Contributions (NICs) due, as well as administration costs.

Your payslip will include your contract pay (before and after any deductions), the number of hours you’ve worked and the amount of deductions.

We hope you found this page helpful. If you need any further help, or you’d like to sign up you can either contact us via our online chat, call one of our friendly experts on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.