We’ve recently launched our sister company Exchequer Accountancy Services which offers a complete accountancy service to contractors running their own limited company.
As a contractor working out whether you should register as an umbrella employee or set up a limited company can be a difficult choice. For some individuals it is clear which approach would work best for them but for others it is more of a grey area.
It’s an important choice, one which can make a difference to the way you work, your job satisfaction, stress levels and how profitable your work is.
There are various factors to consider but one reason it is sometimes a difficult decision to reach is that contractors don’t have a crystal ball. It is hard to predict exactly what you might earn in the future and to know if you will be lucky enough to move seamlessly from one contract to another or will have spells in-between where you aren’t earning.
Once your earnings are above a threshold of £25k you are likely to be financially better off running a limited company because of the tax benefits involved but there are other factors to consider as well as the most tax efficient approach.
Here are some things to think about when considering the options of umbrella employment or setting up your own limited company.
Umbrella
- All your tax is taken care of by the umbrella provider on an ongoing basis. No tax returns and no tax bills at the end of the tax year
- You can claim legitimate expenses
- There is very little administration involved
- You will be paid weekly and won’t have to chase payments
- You benefit from all the rights that come with employment such as sickness pay and maternity/ paternity benefit
- You will have a contract of employment which can make life easier if you are trying to get a mortgage or loan
Limited
- You are your own boss, you have the flexibility to work when you want and where you want
- Limited liability, your business and personal finances are kept separate. So if the worst happens and the limited company runs into financial difficulties your personal finances and possessions are not at risk
- As long as you keep track of all your costs and expenses it is usually the most tax efficient approach so you could reap financial rewards from going limited
- As a Director of a limited company you have certain legal obligations such as delivering statutory documents to Companies House as and when required by the Companies Acts. These include: submitting accounts & annual returns, giving notice of any change of directors or secretaries. It is also usually down to the directors to give notice of a change of registered office.
In addition to producing proper accounts and sending the required documents to Companies House you must:
- Comply with the law on areas such as health & safety, employment law and tax
- In some instances you may be responsible for the actions of your employees (if you have any)
- Remember as a director you are legally responsible for your company’s records, accounts and performance
If you think that limited is the approach for you then our sister company Exchequer Accountancy Services can help and support you throughout the process.
If you would be better suited to using an umbrella service then you can register direct on our website or give us a call.
Still undecided? Give us a call and we’ll answer any questions you may have.
