How can contractors who own a limited company make the most out of their pay packet? It’s a good question, and one you’ll be pleased to hear has many answers. This guide delves into a few effective ways to optimise your income so you can make smart choices to maximise take-home pay in legal ways. 

Company structure 

When it comes to ensuring you make the most out of your money, one of the best things you can do is think carefully about which company structure you want to commit to. It’s important you choose the one that best suits you, your situation, and the way you operate. For example, operating under an umbrella company is a great option for new contractors or those on short-term contracts as it offers you a cost-effective solution with a quick set up. However, since you’re on this page, it’s likely you are a long-term or career contractor with a personal limited company, which comes with a greater degree of financial flexibility. For the latter option, it’s important to bear in mind that your IR35 status will also impact earnings. 

Weighing up your options could take some time but it’s a crucial step in making sure you’re not paying anything you don’t need to, and you have access to benefits you do need.  

Contractor taxes: understanding deductions 

It may seem trivial but understanding exactly which deductions will be taken when is important. Working out these calculations especially if you need to factor in ir35 regulations—will allow you to see exactly how much money you’ll be left with after taxes such as corporation tax, income tax, NI contributions and VAT.

Knowing your deadlines 

Staying on top of tax deadlines is paramount if you want to avoid fines and interest charges. Make sure you mark your calendar with the all-important dates so you can get your financial information and documents sorted ahead of time. That way you’ll be less likely to miss a deadline and won’t have to throw away your hard-earned cash in settling penalties.

Pension contributions  

If you run your own limited company, pension planning is a great tax strategy. Due to the fact it classes as an allowable expense, you’re able to lower the amount of corporation tax you pay. We suggest speaking with a pensions or financial advisor to seek advice for your specific circumstances. Not only could it be a way to maximise your pay, it’s also smart planning for your future.   

Claim allowable expenses 

Most people have heard of claiming for allowable expenses – it can be a real game changer as it helps reduce your taxable income. Any expenses that are deemed necessary for the everyday running of your business can be claimed. Depending on the type of work you do, here are a few examples of what contractor expenses could include: 

• Travel expenses – diesel/petrol 

• Broadband bills – phone, internet 

• Goods – tools, stationary, IT equipment, printing supplies, furniture, etc 

• Utility bills – lighting, heating, etc 

• Uniform – protective clothing 

The key here is to make sure you create an adequate separation between your professional and personal expenses, otherwise claiming becomes a tricky and complicated business. Especially if working from home, it’s imperative you only claim for the portion of expenses relating directly to your work life. 

Where possible, we’d suggest using your business bank account to pay for business expenses. Keep all receipts, transaction documents and proof of purchases filed away in chronological order ready for use as and when requested by HMRC. Remember, you need to retain proof for expenses claimed either on paper or electronically for at least six years. 

Get in touch 

Hopefully you’ve reached the bottom of this page with more confidence and understanding on how to get the maximum out of your contractor salary. Still have outstanding questions? No problem, that’s what we’re here for! Simply get in touch with us today and one of our dedicated team members will help you get to the bottom of your query.