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Contractor: Umbrella Company Vs Limited Company?

Im a contractor and I’m wondering whether I should start my own limited company or use an umbrella company. Im also sceptical of either these especially the umbrella companies – I have stories of Partnership/Sanzar Solutions. Can you please tell me how I can go about this.

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    Tom - UKtaxadvisors.com


    Contractor: Umbrella Company Vs Limited Company?

    You are not alone when it comes to deciding the best structure for your contractor business. Most contactors have the same question – which way to go Umbrella Company or limited company. To get a detailed comparison of your situation simply complete the contact form above to receive a ‘no-obligation’ income illustration from our accountants/Uk tax advisors which compares your potential earnings through a Limited Company Vs a standard PAYE through Umbrella company.
    Below are some of the factors we consider:

    Option 1 – Umbrella Company (Payroll service)
    An umbrella company is a company that acts as an employer to agency contractors who work under a fixed term contract assignment, usually through a recruitment employment agency in the United Kingdom. IF you are a contractor who wants to avoid the administration duties normally associated with contracting, namely issuing invoices, chasing payments from clients / agencies, calculating tax and national insurance (NI) contributions and making payments to their bank account, then an umbrella company will do.

    In essence, you are become employed by the umbrella company- there is no need to worry about IR35. The contractor generates and sends an invoice to the agency or client, chase payment when it’s due and then upon receipt of payment will calculate your tax and N.I and transfer your net pay direct to your bank account.
    Naturally, there is a fee for providing an umbrella service which can vary hugely between different companies. For new contractors the umbrella company is often an appealing option, as it provides an easy and cheap way to decide if contracting is for you.

    Option 2 – Limited Company (or Personal Service Company)
    The vast majority of contractors work through their own limited company, as this is the most tax efficient method, enabling them to keep more of their income. However, these tax advantages are wholly dependent on whether they fall inside or outside IR35 “rules”.

    By setting up a limited company you have complete control of the running of your company and its bank account. Provided your contract falls outside IR35 (i.e. you’re not deemed to be an employee of the client using a limited company as a disguise) you may draw dividends from the company that are not subject to National Insurance (NI) contributions.

    Many contractors decide against starting a limited company because of the day to day administration and the legal requirements all limited companies have to comply with. However, running a company takes most of your key time, its best you appoint an accountant/tax advisor on our “Find Accountant/UK tax advisor near you” page and these experts offers the best services in helping you setup and run your limited company – everything from company formation and the setting up of your bank account through to invoicing your clients; monthly payroll, annual account preparation and corporation tax returns are all included in the service.


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      Thats ok as long as you reference to work to UKtaxadvisors.com. Thanks


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