Setting up a limited company can help many freelancers in the UK pay less in taxes, according to financial experts UC Finance.
There are around 200,000 umbrella company contractors working in the UK, according to UC Finance’s estimations. However, the firm says that around 50 per cent of these freelancers could end up paying less in taxes if they officially set themselves up, saving as more than £10,000 on their taxes for the average freelancer with a £350 per day going rate.
The main reason for this difference is that limited company directors have no requirement to pay national insurance on any dividends. However, umbrella company contractors still must do so as required by law.
UC Finance chief executive, Alasdair McGill, commented on the research findings, remarking that contractors and freelancers operating in the UK are missing out on vast sums of cash because they have chosen to – or have been talked into – using an umbrella company to resolve their pay cheques. Hwever, this system is simply not for them, despite what their recruitment agency might have told them or their fears of delayed invoice payments or IR35 investigations.
No matter the whys and wherefores, Mr McGill said that in the end as as many as 100,000 freelancers are labouring under a system that has them paying over the odds in a significant manner – and for no good reason whatsoever. The chief executive heartily recommended these contract workers to take the final step in managing their own business by becoming a limited company.
