Limited vs Umbrella

integro Running Your Business, Starting Up

One of the first decisions you’ll face as a contractor is how you’re going to operate. For example, will you work as a sole trader, an umbrella employee, or will you trade through your own limited company?

While all of the above options are open to someone wanting to work for themselves, each has its own advantages and disadvantages, and this handy guide will help you understand them.

Umbrella Employment?

When you work through an umbrella company, they will become your employer. Your agency pays them at your contract rate, they make a profit and cover their costs, and the remainder is paid to you through the umbrella’s PAYE payroll system.

The main benefit of contracting through an umbrella company is the ease of it; you are essentially an employee of the umbrella company, meaning they sort out all your PAYE, Tax and National Insurance before you receive your payslip.

The umbrella option does give you the flexibility of working on contracts while still benefitting from the same rights as a permanent employee. For example, as your employer the umbrella must pay you statutory payments like sick pay and maternity/paternity pay and you’ll be entitled to paid holiday and a workplace pension scheme. However, it’s worth remembering that the umbrella’s only income is your contract rate, and any costs they have to pay will come out of that before they pay you, along with their profit margin.

Umbrella employment also does not allow you the same tax planning opportunities that are available through a limited company, so you’ll often be paid less using this option. It’s generally used by people who don’t expect to be contracting in the long term, or those who want to try out the contracting lifestyle.

Limited Company?

A limited company is a separate legal entity, with it’s own bank account and tax liabilities. Your agency or client will have a contract with your limited company, and your company will accept payments for the work you complete. As a shareholder you have quite a bit of control over how your company pays you, which is why it’s the most tax efficient way to operate if you’re considering going self employed.

Generally, you’ll take a monthly salary at the minimum tax threshold (£8,160 per annum 2017/2018) and anything thereafter is taken as a dividend. A dividend is another way to take money out of the limited company’s retained profits, but before you do so, it’s best to speak to an accountant. You can typically take out 75% – 80% of your company’s retained profits, this is after tax, NI and PAYE. Another reason why contracting through a limited company is more tax efficient than other ways of contracting is that you can claim for a wide variety of expenses.

Setting up a limited company isn’t as difficult as you might imagine. The easiest way is to give Integro a call and talk through your plans and your options; so if you’d like some free advice before setting up your limited company you can give us a call on 01525 303984. Setting up a limited company isn’t as difficult as you may imagine, the easiest path is to give Integro a call and talk through your plans and your options; so if you’d like some free advice before setting up your limited company you can give us a call on 01525 303984.

What expenses could you claim?

Travel

As a contractor working at a client company location you can claim the mileage of the travel from your home at 45p per mile for the first 10,000 and thereafter 25p per mile. This expense includes the running and maintenance costs of your vehicle as well as the cost of fuel.

Accommodation

Hotel costs and any meals in conjunction with an overnight stay can be claimed as an expense. While there are no set allowances for this expense, it must be deemed “reasonable”.

There are many more expenses you can claim through your limited company and a more detailed explanation can be found on our Claiming Expenses page.

Work/Life Balance

As a limited company contractor, one of the many benefits is that you can control your work/life balance, which seems to be an important factor when considering a contracting lifestyle. While there can be more responsibility when working through a limited company, compared to an umbrella company for example, you are in complete control.

Being a contractor means that your end client does not determine, when, where and how you work to complete your contract. So if you choose to do so, you could work from home or only work a certain amount during one particular week; but this does however need to be determined within your contract.

Personal Security

Unlike other ways of working for yourself, operating through your own limited company means that your personal assets won’t be affected, should the limited company have debts; your personal assets are not at risk when working through a limited company.

This however is not the case in many other ways of working for yourself, by operating through a limited company and your personal assets are not at risk.

Credibility

As a limited company contractor, there comes a certain assumption that you and your company provide a sense of confidence when looking for contract work; and some companies prefer to work with limited company contractors over other self employed workers.

Being in Control

Becoming a contractor and doing so through a limited company means that you are in the driving seat, and you are in control. You can take holidays and breaks from contracting whenever you like even for further education or courses to strengthen your CV. You have complete control and flexibility of your work life balance, which is one of the best advantages to becoming a contractor.

Overall, if you’re considering a contracting lifestyle, even if you are just dipping your toe in the water and you could actually find yourself contracting for longer than you expected, setting up a limited company is the best way to being working for yourself and becoming your own boss.

If you would like to speak to us about becoming a contractor and how our services can help you be in control of your own career, give us a call on 01525 303984 or email christian@integroaccounting.com

Setting up a limited company isn’t as difficult as you may imagine, the easiest path is to give Integro a call and talk through your plans and your options; so if you’d like some free advice before setting up your limited company you can give us a call on 01525 303984.

Setting up a limited company isn’t as difficult as you may imagine, the easiest path is to give Integro a call and talk through your plans and your options; so if you’d like some free advice before setting up your limited company you can give us a call on 01525 303984.

The reason setting up your own limited company is the most efficient way to operate is that you take a monthly salary at the minimum tax threshold (£8,160 per annum 2017/2018) and anything thereafter is taken as a dividend. A dividend is another way to take money out of the limited company’s retained profits, but before you do so, it’s best to speak to an accountant. You can typically take out 75% – 80% of your company’s retained profits, this is after tax, NI and PAYE. Another reason why contracting through a limited company is more tax efficient than other ways of contracting is that you can claim for a wide variety of expenses.

What expenses could you claim?

Travel

As a contractor working at a client company location you can claim the mileage of the travel from your home at 45p per mile for the first 10,000 and thereafter 25p per mile. This expense helps you cover the running and maintenance costs of your vehicle.

Accommodation

Hotel stays and any meals in conjunction with an overnight stay can be claimed as an expense. While there are no set allowances for this expense, it must be deemed reasonable.

There are many more expenses you can claim through your limited company and a more detailed explanation can be found on our Claiming Expenses page.

Work/Life Balance

As a limited company contractor, one of the many benefits is that you can control your work/life balance, which is one of the things contractors often say they love about the contracting lifestyle. While there can be more responsibility when working through a limited company, compared to an umbrella company for example, you are in complete control.

As a contractor, your end client is your customer rather than your employer, which makes for a very different relationship. You can expect to decide where and how you work to complete your contract. So if you choose to do so, you could work from home or only work a certain amount during one particular week; but this does however need to be determined within your contract.

Personal Security

Unlike some other ways of working for yourself, operating through your own limited company means that your personal assets won’t be affected. Should the limited company have debts; your personal assets are not at risk when working through a limited company.

Credibility

Operating through a limited company can provide your clients with a sense of confidence in you an your work, and some companies prefer to work with limited company contractors over other self employed workers.

Being in Control

Trading through a limited company puts you in complete control of your business, your finances and your career. You can take holidays and breaks from contracting whenever you like, even for further education or courses to strengthen your CV. You have complete flexibility of your work life balance, which is one of the best advantages to becoming a contractor.

If you would like to speak to us about becoming a contractor and how our services can help you be in control of your own career, give us a call on 01525 303984 or email christian@integroaccounting.com.

Why Integro Accounting?

Integro Accounting is the UK’s only specialist provider of fixed fee, limited company accountancy services for contractors, consultants and freelancers that was established to an award winning standard – our Practice Manager, Maria Hickmott FCCA, won The British Accountancy Awards’ ‘Accountant of the Year’ in 2011.

We were set up with the vision of providing a service that is the ultimate for the dynamic, busy professional of today in a language you understand.

Integro Accounting have designed a bespoke service for the contractor who is always on the go; never forgetting that one size will never fit all.

The relationship you have with your accountant is the most important factor in our service which is why we will always offer unlimited contact with your own personal accountant; whether that contact is via the phone, email or face to face.

We have our 3 offices located in London, the South-West and on the Bedfordshire and Buckinghamshire border. There are also meeting locations in many of the major cities and towns across the Home counties, South-West and South Wales, all conveniently placed so that you never have to travel far to meet your accountant.

If you have any questions about contracting or would like to find out more about how Integro Accounting can help you and business please call Christian on 01525 303984, email christian@integroaccounting.com or request a callback.