Set Up Umbrella Company instead of pay someone else?

ringbenr

Hi there, first post on here but have used the site loads in the past - so much good advice I've never needed to!

Both a friend and I have found ourselves in a position where we are self-employed and contracted, and were considering using an umbrella company such as 360group or Parasol but of course the fees immediately presented a problem.

Do we wondered - would it be worth setting up a company (I am already freelance and have been moving towards it) and processing invoices through that?

Realistically how much extra work would it involve and what are the tax benefits (if any) to doing it this way? Combined monthly income would be between £2500-£3500 - but hopefully would see some increase over the year.

I appreciate any help and advice whatsoever - Thanks!

InsideInsurance

Speak to an accountant for advice, particularly as you are considering doing it together.

There are normal tax benefits via a Ltd company but part of that comes from having dividends rather than salary. If you have two of you though in the company and presumably work separately from each other and inconsistent fees then this may not be appropriate as you'd effectively have a set share of profits even if he goes off on holiday for 6 weeks

Most who operate a Ltd will have an accountant do the books, PAYE, VAT etc so there is no real additional work over using an umbrella but inevitably there are their fees but these are a company expense

ringbenr

Thanks for your advice. I am doing my best to research this as thoroughly as possible, including talking to anyone I can.

Do you think it might perhaps be more beneficial to set up a company myself - and then employ my friend through that? Maybe on a zero-hours contract? Would there be any benefit here?

cheers!

toffifee

I use Parasol because IR35 applies to my work situation. If it also applies to you it might influence your decision so it might be worth looking into.

If I wasn't caught by IR35 I would definitely set up a company and use dividends to increase my net income. As it is, I consider the Parasol fee to be a small price to pay to avoid the hassle of VAT etc. - I just don't have the time for that at the moment and and spare time I did have would be better spent by working more billable hours.

InsideInsurance

ringbenr wrote: »

Do you think it might perhaps be more beneficial to set up a company myself - and then employ my friend through that? Maybe on a zero-hours contract? Would there be any benefit here?

Whats in it for them though?

Find an accountant who has good experience of IR35 (ie has many contractors on their books) and speak to them about the options

ringbenr

@InsideInsurance - I guess that's my question isn't it? I suppose I would be charging them less than the umbrella company would.

Of course I will be seeking an accountant's advice - but personally I've never found book-keeping a problem, especially tools like Sage. As far as I'm aware doing the paperwork VAT etc couldn't amount to more than a couple of hours work a month right?

Yes IR35 does apply to my friend but not currently for myself.

InsideInsurance

VAT would depend on if you are flat rated or not and what volumes of transactions you have going on. Generally its going to be less than hours.

A decent accountant will save you more money than they cost. You do the book keeping, give them the files and they do all the returns and deal with any HMRC queries etc

Pennywise

Even if you/they are caught by IR35, your own limited company is still likely to be beneficial as you have more options for claiming expenses through the company (to use up the 5% allowance) such as computing, telephone, office supplies, etc.

You could also benefit from the flat rate VAT scheme.

You can get an accountant to do all the hard stuff for you and just do the simple things yourself, like raising invoices and filling in a simple expenses claim form. There are plenty of accountants who, for around £100 per month, will do your book-keeping, VAT, payroll, end of year, etc. That's the same kind of price you'd be paying an umbrella company for none of the benefits. The flat rate scheme savings and the extra expenses you can claim will be more than the accountancy fees so you're quid's in. Just make sure you get a good accountant, not a town centre firm that doesn't understand contracting/IR35 and not an unqualified/inexperienced bod muddling through - like I say, plenty of experts out there for £100 per month or so.

ringbenr

Excellent advice thank you very much everyone: I have a few accountants in the family that I will be speaking to also but it's also nice to get a broader picture - I'm also interested in anyone's experience of doing anything similar