Limited Company or PAYE One of the first questions you will be faced with as a contractor is whether to be paid on a “PAYE” basis or through a Limited Company. Both methods are popular choices with contractors and have distinct differences.
PAYEAs a PAYE contractor you contract directly with Faststream. We will pay you an agreed rate and from that amount deduct income tax and national insurance. We will then pay the deductions over to HM Revenue and Customs on your behalf. Your will receive a payslip from Faststream each week and a P60 at the end of each tax year. Apart from your own personal tax return (if applicable) there is nothing else for you to do.
You are entitled to statutory sick pay which Faststream will administer on your behalf and to holiday pay which you accrue as you work and receive when you actually take the holiday.
Limited Company Many contractors opt to supply their services through a limited company. In short, Faststream would contract with your limited company and your limited company would employ you. There are some distinct advantages and disadvantages to operating a limited company. Some of these are detailed below.
Advantages
- Certain expenses can be claimed eg travel and subsistence
- By taking dividends the overall tax burden can be reduced increasing your take home pay
Disadvantages
- Increased administration eg you have to lodge accounts at companies house each year
- Cost of operation – E.g. you will need to take out employers and public liability insurance.
Both the advantages and disadvantages need to be considered prior to making any decision. Organisations exist to help relieve some of the administrative burden. These are known as composite or Umbrella companies. For more information please see our factsheet.