What are the costs against income in the UK?

Contractors pay two types of tax and national insurance. In the UK to contract you need an Umbrella Company or your own Independent Limited Company commonly referred to as a PSC. This means that your company pays tax (corporation tax) and national insurance (employers national insurance) and you the contractor pay personal tax and national insurance.

Structured properly with the right professional advice your tax bill as a percentage of your earnings will be less than in permanent employment. However contractors on low market rates with the inadequate support could end up paying more tax than a permanent employee. This is because they have to pay both types of N.I. whereas in a permanent job the employer pays the employers national insurance.

Also remember you will have to pay fees for running a limited company either to an umbrella company provider or an accountant and these can be as high as 8% of your contract value so its important to get a market rate! However professional contractors earning market rates with the right support will earn more gross pay and end up with more in their pocket!