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Umbrella company OR Ltd company

Hi I will be starting a job on 7/4 and I need to decide whether to go through a umbrella company or set my own Ltd company's I'll be earning £24.03ph and working 37 hours a week!

So basically which would be best to do?

Comments

  • PuzzledDave
    PuzzledDave Posts: 185 Forumite
    The answer is.... it depends.

    Umbrella = easy time of it. They handle all the legal, tax and invoicing issues and mistakes made in tax and legislation around your employment are largely their issue.

    Ltd = YOU are responsible, YOU have to get all the legal bits done and if your accountant messes up - YOU are liable. The upside is you get to hold on to a noticeable chunk more of your money even after your accountant has taken their fees. Oh yes... and you get to call yourself a Director on your business cards :beer:

    I was in the same situation in January, but I had less than a week before my contract started ! I had planned to be a sole trader to fulfill the contract offered to me, but with a week to go they then told me that wasn't acceptable :eek: I choose to go limited and within three weeks I had everything done:

    1) The company registered at companies house
    2) The company VAT registered
    3) A business bank account
    4) Professional liability insurance
    5) My accountant granted access to all the relevant items to handle everything PAYE, corporation tax, provide crystal clear information on amounts I could withdraw based on invoices, liabilities and my expenses.

    (only (1) was done before I went into the office on the 1st day !)

    My accountant basically either organised these all for me or did 95% of the work. Yes, they take a sum from me every month and I am sure they got some kickback from the insurance company, bank and other bits... but I was in a real hurry and they have taken nearly ALL of the leg work, told me about some legal items I did not know I had to complete (e.g. register for self assessment) and given advice whenever needed during office hours on anything I wanted to know about limited company requirements.

    Maybe there are cheaper/better companies but at the moment am very satisfied, if I suddenly disappear this time next year, you'll know there is something critical missed. :rotfl:
  • holly_hobby
    holly_hobby Posts: 5,363 Forumite
    1,000 Posts Combo Breaker
    If you are likely to be caught by IR35 (ie all income subject to income tax and NICs), then I would go for umbrella, as you're saving the ltd co set up costs and ongoing fees of an accountant for no tax advantages.

    Hope this helps

    Holly x
  • Hurdler
    Hurdler Posts: 1,361 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker Mortgage-free Glee!
    When I set up I had one colleague as part of an umbrella company and another on her own. I went for my own company and an online based accountancy that handles EVERYTHING for me and have never looked back! But I did go through a recent and irritating spate of umbrella companies cold calling.
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  • Pennywise
    Pennywise Posts: 13,468 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    If you are likely to be caught by IR35 (ie all income subject to income tax and NICs), then I would go for umbrella, as you're saving the ltd co set up costs and ongoing fees of an accountant for no tax advantages.

    Hope this helps

    Holly x

    I wouldn't say there are no tax advantages. You could profit by at least a few hundred pounds by using the VAT flat rate scheme. You could claim a few extra costs (not allowable as an employee but allowable for a business) by using the 5% allowance under IR35, such as computer equipment, stationery, postage, insurance, etc. The accountancy fees probably won't be any more expensive than the umbrella charges. If you choose a good accountant (preferably recommended by someone you trust who uses them), then it shouldn't be any more painful as they'll guide you through it all and do the HMRC/CoHouse filings for you.
  • Hi I will be starting a job on 7/4 and I need to decide whether to go through a umbrella company or set my own Ltd company's I'll be earning £24.03ph and working 37 hours a week!

    So basically which would be best to do?

    JOB ? Alarm Bells ring....IR35?

    I avoid the Job word. I have a Project, a Contract, a Client. I can substitute myself for someone else, I chose my hours, I decide how and where the work is done. I have professional indemnity insurance - because I am liable for my own mistakes.

    Personally I don't like the idea of giving my hard earned money away, and always saw Freelance Contracting as the next 15 years of my career.

    If this was a stop gap, and you absolutely intended to try and get into a Long Term Permanent Position, OR, if you were legally not allowed to be a Director then, I'd suggest an Umbrellor company.


    I do most of my "Paperwork" and use an accountant for a once a year check, and submission to HMRC.

    What this has done has taught me how to run the 'back-office' bit of a business, without the risk.
  • holly_hobby
    holly_hobby Posts: 5,363 Forumite
    1,000 Posts Combo Breaker
    JOB ? Alarm Bells ring....IR35?

    I avoid the Job word. I have a Project, a Contract, a Client. I can substitute myself for someone else, I chose my hours, I decide how and where the work is done. I have professional indemnity insurance - because I am liable for my own mistakes.

    Exactly my point, as if you can't do this, ie your client won't realistically accept a substitute, you have to be on site between certain hours, you can't work for any other client at same time, you need permissions for absences, you (your company) aren't liable for remedy of mistakes and don't need any professional insurances (prof indemnity, public liability), (list not exhaustive), then you will highly likely lifall within IR35 on any HMRC inspection - and your income is wholly subject to PAYE regs as they will view your position (removing the ltd co) as a employee.

    If you are later caught on any HMRC IR35 inspection, then you will have to pay all back tax and NIC plus a fine (although there is an insurance you can take out for such events) - so you can see that effecting a ltd co without taking any professional advice on your position would be folly.

    Here is a quick HMRC check guide to see if you are at low, med or high risk of coming under an IR35 probe (to which from 2012 they are now much more vigilent, having 4 dedicated teams set up for this purpose).

    http://www.hmrc.gov.uk/ir35/guidance.pdf

    Hope this helps

    Holly x
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