I never said it was tax avoidance, I just questioned whether there was a higher tax burden. You guys seems to be saying there is, but that doesn't make sense imo.
Sorry I thought you were trying to be funny saying "expense to the extreme" implying we were taking the mick to reduce the tax burden.
No there isnt a higher tax burden on a Ltd co compared with an umbrella, it is potentially lower or be virtually the same, it all hinges on IR35. If you are captured by IR35 then, the difference between umbrella and Ltd makes next to no difference on your income.
If you are outside of IR35 then you will be better off financially. Currently under an umbrella you pay:
Corporation tax, employers NI, income tax and employees NI
Under Ltd you can pay exactly the same or you can choose to pay yourself a small salary around your tax free threshold and pay yourself dividends. Dividends are taxed differently, up to the higher rate tax threshold, dividends are taxed at 10% BUT on dividends you get a 10% tax credit which makes the tax payable under higher rate tax £0. Once you go over the higher rate tax threshold the tax on divs goes up to 35% but with the 10% credit, you pay 25% or if you have a wife, you can make her a shareholder and use her tax allowance, so both you and your wife could earn approx £43k each and not pay any income tax.
Also due to the small salary, if you pay the right amount you will barely have to pay any NI, you will pay a bit to qualify for the state pension etc. If you also register for flat rate VAT, you get to keep a portion of that VAT you charge the client. So under ltd co you would pay:
VAT, Corporation tax, tiny amount of NI, and income tax above approx £43k or in reality you can juggle the salary to what ever you want so long as you pay the appropriate taxes to compensate.
I hope that makes sense, if not then there is more than enough information on the internet with the relevant calculators etc.
