Umbrella vs Own Limited Company (Inside IR35)?

[Vaseline]

Hello experts,

After posting a question earlier today, I've been advised to start a new thread on this forum. Having now decided to work through my own limited company on an 'inside IR35' basis, can anyone tell me if there really is any difference between this option and working through an Umbrella Company?

I thought I had made up my mind but now I'm not so sure

Thank you!

[Malvolio]

If you go on the basis you're inside IR35 and leaving aside expenses which are tax neutral anyway (and don't let anyone tell you differently), using YourCo you will be paying PAYE and employers and employees NICs on 95% of the balance. The balance is your net income.

Under an umbrella, you pay PAYE and NICs out of 100% of your gross, less the Umbrella's fees. So you net out rather less.

Plus with YourCo you can register for VAT and the Flat Rate scheme, which adds a little more income (not much, but it all helps) and you're all set for the next contract by which time you should have worked out how IR35 works and why you are probably not inside it!

HTH

[Rob Crossland]

Originally Posted by Vaseline

Hello experts,

After posting a question earlier today, I've been advised to start a new thread on this forum. Having now decided to work through my own limited company on an 'inside IR35' basis, can anyone tell me if there really is any difference between this option and working through an Umbrella Company?

I thought I had made up my mind but now I'm not so sure

Thank you!

Hi (again).

Mal is largely correct in points made but I would also frame a response in terms of understanding your attitude to risk and hassle. In very broad terms:

Ltd - more responsibility (in or out) in that you need to be in control of finances, setting up banking, signing off registration forms. All of which is not onerous and some will be done for you (to an extent) by a good specialist accountant. You will of course need to factor in payment structure once you or advisor has reviewed your status in relation to IR35 etc. Running a Limited Co would "usually" yield more income than an employed scenario but all circumstances are different and be careful not to accept a solution before an advisor has taken time to understand what you want and what can be achieved.

Umbrella - All done for you in terms of admin/setup largely (ID checks required) and you receive income on an employed basis with the benefit of business expenses probably creating income higher than if not contracting.

There are more (marginal) risks with setting up and running Limited Co but that fits with being in business. Umbrella is easier and many often use this as a starting point (e.g. don't need to wait x weeks for VAT reg to come through) and then move onto Ltd when they know it's going to be a career/business rather than a stop gap.

A number of providers on here (ourselves included) provide best advice on what is appropriate for the individual.

Hth,
Rob

[Martin Hesketh]

At Brookson we provide financial services, tax advice and support to both umbrella and limited company contractors. There are advantages and disadvantages to both ways of working.

For a contractor operating as a limited company, there are significant financial benefits to be made through careful tax planning. It does, however, mean you have a commitment to managing the finances of the business and the personal responsibility of working compliantly with relevant legislation.

Working through an umbrella company is probably the better option for someone contracting on a short term basis as there are costs involved in setting up and dissolving a limited company. It doesn’t involve the same level of administration because you’re an employee of the umbrella company. You have less responsibility compared with running your own business but the financial benefits are also less.

For contractors looking for a more long term solution that maximises income, setting up a limited company is financially speaking the better option, but your suitability as a limited company director depends on your individual circumstances and projected income.

By working with a service provider that operates both umbrella and limited company services you can receive honest and impartial advice on the best choice for you. It’s essential to have a clear understanding of employment and tax legislation so that you’re aware of the implications of this important decision.


Martin

[PhilAtBFCA]

Originally Posted by Vaseline

Having now decided to work through my own limited company on an 'inside IR35' basis, can anyone tell me if there really is any difference between this option and working through an Umbrella Company?

I thought I had made up my mind but now I'm not so sure

Thank you!

Hi Vaseline,

Yes, I think there is a big difference !

Your own Limited Company is your business and your responsibility, whatever assistance you get from an accountant it does not take your responsibility as the director away.

Your own Limited Company also comes with more independence, control over your money and more flexibility to legitimately plan your taxes.

In an Umbrella Company you are an employee, and thats not like the responsibility of being a director of your own business. But you still have responsibility as a tax payer to pay the right personal taxes !

To me, its not just about the money. There is a video and spreadsheet that gives you a good basis for making a sound financial decision here, but running your own business is a different decision and you would want to be comfortable with that also.

Hope that helps,

Phil