Umbrella Company or Limited Company
A reader sent in the following question on whether to choose an Umbrella Company or Limited Company. We have asked Accountant readers to keep an eye out for questions from contractors here and reply to them.
Question from StevieBaby
I currently have a ltd company, but I am worried about IR35.
Some of my colleagues are in Umbrella Companies and they say that it takes the hassle and the fear away from them. They say it doesn’t make that much difference to their income.
Should I be in an Umbrella Company or ltd company?
From an Accountant:-
There is a little bit more paperwork in running a ltd company. However, it may well be more tax advantageous, especially if you are outside IR35.
The use of a brolly does not take away IR35.
As a general rule, if your contract is greater than 6 months then it could be worthwhile speaking to an accountant to explore the possibility of running through a limited company.
If it is not worthwhile or appropriate then a good accountant should advise appropriately.
Here is a list of major and minor IR35 Factors and their explanations. See IR35 Factors
From an Umbrella Company:-
IR35 is a potential problem for personal service companies as they designed it to tax excess (from the IR perspective) profits.
The vast majority of safe and reliable umbrella company employees are not hindered by this as they are employed by the company and taxed at source.
In this way you can allow business expenses and various umbrella companies offer variances on this. The key point is that all the hassle and worries make the safe umbrella option a very viable route.
So, the choice is yours in whether you want to operate through an umbrella company or limited company.
Here is a Directory of Umbrella Companies