Ltd. or Umbrella?

WolfSong2000

Okay...I am starting a 3 month contract via an agency - being paid on a £170 day rate.

My dilemma is whether or not to use an umbrella company (which is what agency are pushing me to do) or to set up my own Ltd company.

The main issues are that this contract is only guaranteed for 3 months and this is my first foray into contract work. Being pessimistic for a moment I may also decide I cannot abide the job and pull out (never happened yet, but you never know!).

I know I will have a higher take-home if I set up a Ltd company, but I also understand there is more paperwork, hassle, etc.

Fees wise, I am guessing I am looking at £1k per year for the Ltd? Though not sure what would happen if I wound it up after, say, 6 months?

Umbrella fees are around the £25-£35 per week mark for their fees (not including tax, NI, employers NI, etc).

Anyhow...just looking for advice on what would likely be the best option. agency have been pressuring me to make a decision - and to take the umbrella company - but I resent losing upto 40% of my pay in taxes and fees. On the other hand, would the hassle of a Ltd be worth the extra pay, and, in the end, is there that much of a difference?

27yearoldmale

Agency will get a kick back from recommending the umbrella.

Go with the Ltd option - can be set up very quickly, infact some of my Consultants have set up in 24 hours.

Accountant once a year and you're good to go.

WolfSong2000

Yeah...I figured the agency must be getting some sort of kickback due to their "forceful" recommendation.

I guess my main issue is that as I don't know how long I will be doing contract work for, a Ltd. company could end up being more expensive in the long run...but I guess it's a gamble worth taking!

27yearoldmale

You'd have to do some research but I understand it is not too difficult nor expensive to dissolve a Ltd company.

There is loads of information on and a section called 'first timers'

contractors uk dot com - all one word.

Claree__x

Incorporating (setting up as a ltd company) is really not worth it for less than a year, 6 months at a push. If the work is there then you will make more money being a ltd company (even with having to pay accountants fees) but only if it's relatively long term.

InsideInsurance

What are your plans? Are you being forced into contracting or making an active choice to pursue it? When this contract ends do you want to go for another contract or go back to perm?

Assuming you would like to continue contracting afterwards then personally I'd go for a Ltd.

A normal umbrella is just bad value unless you are on very low day rates or are only intending to contract for as short a time as possible. Tax avoidance umbrellas are obviously a different kettle of fish and arent a risk I am willing to run

CrowCrow

I'm starting a contractor position next week. I'm going to go umbrella for the first month or so. If I feel comfortable after that and believe the role is genuinely medium term then I will set up a limited company.

Limited to umbrella seems to make about £500 difference to me a month, so it's a no brainer for the medium to long term.

Pennywise

The monthly accountancy fees are usually very similar to the umbrella charges, but you can claim more costs under your own ltd, such as computer and other equipment, mobile phone, office supplies, as well as the same travelling and subsistence (don't be fooled by umbrella claims of dispensations etc - the rules are exactly the same for umbrellas as for your own ltd). You can also profit from VAT registration. All of this is true if you are caught by the dreaded IR35, but it you're not caught, even better as you can pay yourself a small wage and dividends to avoid paying NIC. Just avoid accountants who charge high fees for set-up and close down. Even for short term, your own ltd co could well work out better than an umbrella. Key is to get a good accountant on board from day 1.

WolfSong2000

The idea to pursue a Ltd company is my own...I have spent the last few years temping and never really settled into a "permanent" job...it's just now I finally have the experience under my belt to start commanding rates that make a Ltd company potentially worth it. Thing is I worry about the lack of guaranteed work after this contract ends...that makes me nervous.

Had my first day today in new job as a "handover"...it was the last day of the person who had been doing my job. So next week will be sink or swim. *If* I can get support from senior management then this could be a really interesting job and I can get some amazing project management skills out of it. If not I will be stressed, screwed and the whole thing will have been a massive waste of time.

So yeah...a one day handover was not ideal. We'll see how next week goes. I will have some more conversations with accountant this weekend, but so far their figures seem rather awry....£100 to set up the ltd company for me, but only around £400 per year to maintain it, file taxes, etc...will need to dig into that a little more.

Majestic12

Good luck with your new venture into contracting

Remember to have a contract and to get it reviewed for possible IR35 issues, if you work through your own limited company.

xoAmyox

Your accountancy quote seems very low - a poster above recommended a good contractor forum (http://forums.contractoruk.com/) that also has a very good recommended accountants thread.

There are many differences between a contractor running a ltd company than a typical business with many customers - these differences need to be understood and handled well by your accountant or you could face the consequences.

I second the poster(s) that recommended getting your contract reviewed for IR35 implications. If you fall inside IR35 (not just on paper, but also through your actual working practices), then you will be barely any better off than a permanent member of staff when it comes to take home pay.

If you do visit the contractor forum, there are many guides to read through so you understand what is the best course of action for you (and good luck - I love contracting and I hope you will too!)