Umbrella Company or Limited Company
To be in an Umbrella Company or Limited Company is one of the great choices that UK contractors have to make. So, how do contractors decide?
The main reasons that UK Contractors choose an Umbrella Company rather than a Limited Company are as follows:-
1. Inside IR35 Tax
UK contractors should definitely choose an Umbrella Company if they are caught by IR35. They can, at least, claim some expenses against tax that a permanent employee could not.
2. IR35 Tax – UK Contractors don’t want to risk it
IR35 is a real grey area. Many UK contractors are not sure if they are inside IR35 or outside IR35.
Rather than worry about being investigated and having to pay a whole load of back tax, they would prefer to be in an Umbrella Company.
They want to sleep safely in their beds at night.
3. They want to leave the Admin to someone else
Many UK contractors just want to concentrate on their core competency, which is contracting. They don’t want to be chasing agencies for payment, doing their VAT returns and their book keeping for their income tax.
They would rather pay an Umbrella Company each month to do that for them.
4. They can get their money quicker
With Umbrella Companies, UK contractors can get their money pretty much straight away.
A lot of Umbrella Companies will pay the contractor when they receive the timesheet.
If agencies have to be chased to pay up then it is the Umbrella Companies who have to do that.
Choosing Limited Companies
When choosing between Umbrella Company or Limited Company, provided you are sure you are not caught by IR35, Limited Companies would be better financially for UK Contractors.
It is estimated that Limited Company contractors pay ten grand a year, on average, less than Umbrella Company contractors on tax and National Insurance.
IR35 laws are open to interpretation. Being inside IR35 and being outside IR35 is sometimes marginal. See IR35 Factors
Indeed, IR35 is judged contract by contract.
Unless they are absolutely sure that they are outside IR35, many UK contractors, who operate through Limited Companies, don’t sleep well in their beds at night in case they get investigated for IR35.
They may have to pay tens of thousands in back tax if they are found to be inside IR35.
When deciding between an Umbella Company or Limited Company, some UK contractors will think it is worth it for the extra ten grand a year. Others may not want the risk.
Offshore Umbrella Companies
The very best way for UK Contractors to keep more of their money is through the use of Offshore Umbrella Companies.
They can get to keep 85% to 90% of the money they earn.
For more info click on Offshore Umbrella Company Directory
Umbrella Company or Limited Company Info
Those wanting to go the Limited Company route can set one up for free by clicking Free Limited Company Set Up