Temporary contractors – For those only planning to contract for a short period of time (usually three months or less). Umbrella companies offer a quick option for start up and close down.
Reduced admin – Umbrella companies could be seen as requiring less admin time. This is primarily because all tax and national insurance is deducted before you receive any money, meaning that all taxes due will already have been paid. In addition the umbrella company will be taking care of all of invoicing on your behalf.
Cost – Working through an umbrella company is generally the most expensive way to operate – you will be paying a much higher rate of tax and PAYE on all earnings. In addition, you will need to pay extra fees for administration and you will not benefit from tax planning measures found with a limited company.
Lack of control – Operating under an umbrella company means that someone else will be in charge of all your paperwork which many will see as a disadvantage in itself.
A limited company is an organisation that you can set up in order to run your business. A limited company is a private company whose owner is legally liable for its debts, only to the extent of the amount of capital they invested.
Operating through your own limited company offers more control. The director of the company controls invoicing, the bank account and the amount they receive in the split between salary and dividends – this is a major tax advantage. AccountsNet offers new clients free company setup and all HMRC registrations and in addition we can help with a company bank account if required.
Tax efficiency – Working through a limited company is by far the most tax efficient way of contracting. When working through a limited company you will take home between 75-80% of your contract pay compared to 60-65% when operating through an umbrella company.
You will also be able to claim on a wider range of expenses and have access to the flat rate VAT scheme. As already mentioned you are in charge of all of your finances meaning a limited company contractor has greater opportunities for tax planning.
As a limited company owner you are also able to claim on a wider range of costs incurred in the running of your business such as equipment that you may use or business travel. Our contractor guide will detail all allowable expenses.
More control – You don’t have to deal with any third party umbrella as you are in charge of invoicing your agency directly, which can be done simply through the AccountsNet portal.
We will deal with all HMRC paperwork and provide the necessary advice and support to help you run your company as tax efficiently as possible.
Need More Info?
If you would like more information on choosing the correct option, please get in touch with AccountsNet on 0330 223 2280 and we will run through all of the above in more detail, based on your own personal circumstances.