With a limited company generating £100k/year in revenue, I’m curious how much a contractor would earn after salary tax? (assuming no admin/accounting costs)
Put it through a limited company and you’ll pay a lot less than as salary (and PAYE). It’s a weird quirk, but it’s about half the tax roughly. Means you’ll net about £80k minus some small costs. It’s been some years since I did this but an accountant can advise you and help you deal with any national insurance payments need to be dealt with.
With Ltd, on 100,000 the optimum approach is a PAYE salary of about 12500, which will incur about a 500 NI charge to the company. You then pay corporaton tax on the 87000 of 21750 leaving 65250. If you pay the 65250 as dividend, you'll incur 12500 in dividend tax.
So in total from revenue of 100000 you end up with 12500 (Sal) + 65250 (Div) -12500 (div tax) = 65260. Not better than PAYE.
Of course, the better approach might be to extract only 37500 dividends with a 3200 tax. The company keeps the 27760 residual and one day in the future you may be able to close the company and incur just 10% tax or £2776. This way you'd take home 71750.
Still better, you might choose for the employer to put money in a pension. Here, you could put 40000 in a pension, company profit now 47000 before 9000 tax. Pay the 38000 out as dividend with 3600 tax. You end up with 12500+38000-3600 = ~48000 plus a 40000 pension to be taxed at withdrawal (lets assume 20% so 8000) for about 23000, or 80k. This is the only way to approximate your 80k but a PAYE person could do exactly the same (with a friendly employer) for pension relief.
And the above is all outside IR35. It's worse inside.
The real reason Ltd is more profitable is based on all the hidden expenses of an employer. Rather than 30%+ of the customer fee going to employer expenses before they pay you a smaller salary, they now go to you as a business owner who can do much better than 30% business expenses (close to 0). You're trading that for paid time off, job "security", not chasing leads, etc.
There are a variety of situations where you can end up paying more tax working through a Ltd now. Just on naive marginal rates comparing income tax + employee NI with corp tax + dividend tax on the remainder you'll be looking (once the changes announced in the Budget come into force in April) at 28% PAYE vs. 26% Ltd for basic rate taxpayers but 42% PAYE vs. 46% Ltd for higher rate.
The Ltd rates can also increase noticeably if your revenues increase and your corp tax rate starts sliding up from 19% all the way to 25% (and that's not a marginal rate - your entire profit gets taxed at the increasing rate as you make more).
Of course as an employee you also get huge advantages like paid time off, employer pension contributions, a degree of automatic job security, and not having to file the paperwork and pay the fees for running an entire company. And via a Ltd you have a lot more flexibility to control both how and when you pay out your post-tax revenues that can sometimes be valuable. So it's never really an apples to apples comparison and there's always a lot that depends on your specific circumstances.
If the company earns £100k/yr, what matters is what you, the individual, actually end up with.
Corporation tax will take you down to ~£80ish but you still need to draw the money out of the company.
Most people will take a small amount as a salary through PAYE to use up their tax free allowances and get the NI stamp. The rest is then paid as dividends.