For a new contractor one of the most important concerns is ensuring that all work is legally compliant in terms of charging tax and submitting it to HMRC. The task of determining what must be completed is not made easier by the unending lists of companies offering a wide variety of tax saving solutions for contractors. The most common options in the past have included Managed Service Companies, Offshore Trusts and Employee Benefit Trusts. As time progressed it became clear that these methods did not in fact save money and could bring about a great deal of stress for the contractor due to HMRC interaction for noncompliance.
Staying on the right side of HMRC as a contractor comes down to either setting up a limited company or joining an umbrella company. Both options will ensure that a contractor does not face an IR35, but which one is right for you?
Limited or Umbrella?
We understands that for some contractors, the choice of setting up a limited company is more beneficial, such as when the contractor earns more than £300 per day or when the contractor wishes to be fully responsible for all aspects of their employment and tax compliance. There are also more expenses that are able to be claimed through a limited company then a contractor using an umbrella
We recognize that there will be times when a Limited Company is a better fit for a contractor than an umbrella company. Many long-term contractors will decide that they want to have more control over their affairs and want to be director of their own company or will want to claim back a wider range of expenses or access the flat rate VAT scheme. And for contractors who have been in the business for a long time and are earning more than £300 a day there are some advantages to Limited Companies in terms of taxation. But at the same time there is a lot more admin that goes into running a limited company and that means a lot more paperwork every day and a lot more time dealing with an accountant.
Certainly for contractors earning less than £300 a day this extra hassle is not worth it and it is far easier and more tax efficient to join an umbrella company. Umbrella companies have been round for a long time and have always been popular with contractors, but since 2007 the interest in umbrella companies has rocketed. That’s because from 2007 onwards umbrella companies were seen as different from composite structures and single person companies and new legislation affirmed their compliance and that they would not raise the ire of HMRC. In a nutshell umbrella companies work within PAYE and the contractor pays PAYE and NIC’s the same as any other employee, whilst also being able to claim back many business expenses. They also have the added advantage of requiring no paperwork whatsoever (save for a solitary timesheet at the end of the week) and the contractor does not, therefore, have to deal with accountants, the taxman or even customers who haven’t paid their invoices. Everything is handled on their behalf by the umbrella company.
The Right Choice for New Contractors
In then end then, the choice is relatively easy for new contractors. With your earnings likely to be lower when you first start contracting an umbrella company clearly makes sense in terms of taxation. However, that isn’t the only reason. Whilst a limited company might make sense later on in your career, if you are just starting out an umbrella company will not only free up time to let you concentrate on building your business and client base, it also offers you a freedom to decide whether the contracting lifestyle is for you. Most umbrellas can have you up and running the same day you join (with no joining fees whatsoever), whereas setting up a Limited Company involves a lot of time, money and effort (not to mention accountants) just to get going (and just as much effort if you decide to wind it down because contracting isn’t for you!)
If you are a long term contractor you will be well aware of the headaches and time consuming nature that invoicing and paying taxes can create. Many contractors that choose umbrella companies are experienced ones, who have had a long history of trying to balance work and administration and who do not like the repetitiveness of trying to deal with HMRC, accountants and clients who would rather not pay.
We Make Your Work Easy
When you choose our company to act as your umbrella, you will receive the peace of mind in knowing that everything is being taken care of for you. You will also receive the best retention rate possible as well as further benefits such as an employee status, which allows for sick pay, holidays and free public and professional insurance. You will also benefit from experienced staff who understand how to handle PAYE and NIC issues, debt collection, pension payment and expense claiming.
As soon as you make the decision to use an umbrella company we can have you operating under this method from the first day. It is free to sign up with a flat monthly rate and no termination fees. You will be freeing up your time to spend on bringing in more work and therefore more income! We can maximise your expense claims, take care of your PAYE and NIC contributions, set up a workplace pension scheme, and handle all of the administrative aspect of your work. We can act as a debt collection agency for you on any unpaid invoices; the day we get your money we guarantee to pass it on to you.
Umbrella Company UK
Suite F, Queens Park, Team Valley Trading Estate, Gateshead, NE11 0QD