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The ability to command higher rates of pay is one of the main reasons why so many business professionals leave full time employment in favour of contracting; but how much can you actually expect to earn as a contractor?

The answer to this question depends on how you choose to operate. The two most common ways for contractors to work is by employing the services of an umbrella company or by forming a limited company, each with their own respective positive and negative aspects. For more information on these two contracting options take a look at our limited company or umbrella company guide.

Take Home Pay for Umbrella Company Contractors

Umbrella companies act as employers for contractors and so they will collect your income from your clients, pay it onto you and process any expense claims that you may have. When an umbrella company pays your income to you they will first deduct income tax, national insurance contributions and their company fee.

The amount that you actually take home as an umbrella company contractor will naturally depend on a number of factors including the type and length of your contract, your daily rate, your take on pensions and the amount that you spend on business expenses. We generally say that contractors who work through umbrella companies will take home between 60-65% of their take home pay, although no two contracts are the same so this amount could vary depending on your individual role and situation.

There are various online umbrella take home pay calculators that claim to give potential contractors a clear idea of the amount that they can expect to take home. However, the same issue of varying contracts mean that these online tools should be used as a guide only because the amount that you take home will depend on your contract as well as your individual circumstances. To find out approximately how much you could be taking home as an umbrella company contractor you may find our umbrella take home pay calculator useful.

Take Home Pay for Limited Company Contractors

Contractors that wish to operate as a director of their own limited company can benefit from working more tax efficiently and therefore increasing the amount that they are able to take home. Limited company contractors typically take home 75-80% of their contract as opposed to 60-65% of the contract amount if they were to use an umbrella company.

For a more accurate idea of the amount that you could take home as a limited company contractor you may find our take home pay calculator useful. This online tool has the added benefit of allowing you to compare the amount that you could take home as a limited company contractor and as an umbrella company. Although make sure you are aware that all contracts are different and so the figure calculated will only be an approximate amount.

If you would like more information on how much you could expect to take home as a contractor or to find out the best method of contracting for you then get in touch with a member of our New Business team on 01253 362062 or alternatively email newbusiness@nixonwilliams.com.