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You’ve decided to become a contractor and now you’ve been told that there are different ways of being paid, PAYE or having your own Ltd Company. So what’s the deal?

PAYE (Pay As You Earn)

This is essentially being paid as a regular employee on a contract basis for a company. When you get paid, your taxes and other deductibles are taken out of your pay. This means you don’t have to do your own taxes at the end of every year. There is also the added benefit of having sick pay. Most agencies offer sick pay for in relation to hours worked.

Own Ltd Company

This is where you get paid as an external company for your services. You invoice for the hours that you have worked as a gross salary. No taxes or deductibles are taken from your salary as this is considered to be a business to business transaction. You are then responsible for taking care of your own taxes at the end of every tax year. As you are not considered to be an employee, you will not be paid sick pay.

Final thoughts

There are pros and cons to both PAYE and Own Ltd Company but the main deciding factor is how much you are earning. If you are on a salary worth less than £50,000 a year, it is probably not worth your time to set up your own Ltd Company.

Sounds like something you want to explore further? Get in touch!

Phone: 0161 975 7525

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