Choosing An Umbrella Company Or A Limited Company

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Umbrella Company

There are a number of benefits that you will find when you run your payroll through an umbrella or limited company.  However, before you choose the business structure you will use, you need to know what the differences are between these companies.  This will ensure that you make an informed decision.

What Is An Umbrella Payroll Company?

When you have an umbrella payroll company, it will act as an employer for contractors.  This is an easy option for first-time freelancers and contractors.  An umbrella company is also the best option if you are unsure about whether contracting is right for you or you think you might return to permanent employment later on.

The Advantages

The primary advantage is that there is less administration as the company will handle this.  NI and PAYE will be calculated for you and deducted from your salary.  This means that you will not have to pay these taxes yourself as the company handles everything for you.  You will also receive all of the same benefits as those in permanent employment.

You will have to submit time sheets then wait to be paid by the company.  You will only have to pay for the service when your umbrella company actually processes payments.

The Disadvantages

As you are treated as an employee, your salary is subject to full PAYE and NI taxation.  You will also have to rely on the company to process and invoice correctly as well as on time.  You will not have support if you want to start your own company because you are viewed as an employee.  If your revenue is outside IR35, you could face a higher tax burden than people who are using a limited company. Here is a good blog on Umbrella companies from Charles Hunter.

What Is A Limited Company?

A limited company is a business structure that offers you, the directors of the company and the shareholders a number of benefits.  With this company, your personal finances are separate from the company which limits your personal liability.  If anything were to happen to the company, you would be protected.

The Advantages

Using a limited company will provide a more professional image.  You will also be able to run your own business and be in complete control of your finances.  There is a wider range of expenses that you will be able to claim back when compared to an umbrella company.  This is also a good opportunity for tax planning.

The Disadvantages

With a limited company, you will have to take care of all the administration which is involved in this.  You will also need to spend time on your accounting affairs or you need to hire an accountant who can handle this for you.  If you choose to return to permanent employment, it can cost a fair amount to close down the limited company.  Anyone, including your competitors, will be able to see your accounts and other information you have filed with Companies House.