Whenever an individual is looking forward to start contracting, the first decision they need to make is whether they wish to join an Umbrella company or set up their own limited company. Both the options are up to the mark and come up with particular pros and cons.
If you are not sure which option whether Umbrella or Limited company suits the best, we will compare all the aspects linked with both to help you to figure out which one you can opt for.
Umbrella Company:
When a person is new to a contracting, they usually contract through an Umbrella Company. The reason for choosing an umbrella company is that it will take care of income tax and National Insurance responsibilities on its own. There will be no need for an individual to look into admin task andcan focus on assignments only.
When a contractor is dealing with an Umbrella Company, they would get a contract of employment. Under the contract of employment, they get access to all the statutory employment rights and benefits which include maternity pay, holiday pay, Sick pay& paternity pay.
Features:
- The Umbrella Company will take aspects considering employment, tax, legal and contractual obligations care.
- Along with employment rights, an individual gets professional indemnity insurance and other statutory employment rights.
- An individual will be able to claim the business cost and expenses legitimately.
- Same day payment& employee reward schemes.
- No Admin task, less time and effort leading to administration duties.
- Umbrella company margins are on timesheet or weekly basis and not a fixed monthly charge.
Limited Company:
When a person is happy to take more responsibility, not disqualified to become a director, generally outside IR35 and wants to increase their take home pay, they will be going through a Limited Company. Here the contractor will receive more money as compared to the Umbrella Company.
The individual has to carry all associated administration with own support or through a accounting firm like DNS Accountants. The list of tasks is more and the individual dealing with Limited Companies have to devote hours in a week. The aspects which require there top most concerns include:
- Need to register themselves as directors of the Company and inform the Companies House about the accounts and changes to the Company they were going to incorporate.
- Needs to conduct IR35 reviews regularly on every assignment to check whether they inside or outside.
- The corporation tax returns need to be paid must be accurate and paid by them only.
- An individual needs to be punctual considering to all the taxes and document returns.
- An individual needs to open a separate business bank account.
- Need to communicate with accountant, company house or HMRC for any query.
- Producing all the detailed accounts, VAT records, and invoicing is the responsibility of the individual.
- An individual needs to complete the self-assessment tax return annually.
- Need to pay fees to accountant on a monthly basis
This sums up all about Limited Company and task to bear in mind while incorporating one.
When can a person switch for the Umbrella Company?
An Umbrella Company is the best one to choose when an individual is looking to work on short term contract with no admin task.
When can a person go for a Limited Company?
Limited company is suitable for individual who wants to become a company director enrolling in a long term locum contract and ready to take full responsibility of handling all company compliance and accounting task.
Wrapping up:
After understanding about Limited Company and Umbrella Company, the question is which one is the best to choose?
It depends on the individual who is about to start temporary work. If they are ready to be an employee, they work via a Umbrella Company and wish to be adirector can go for Limited Company.
The earnings in Limited Company are higher compared to Umbrella Company. But the benefit of choosing an umbrella company is work without any hassle.
If you are looking to connect with an Umbrella Company, DNS Umbrella is happy to assist. We will help you understand all benefits of joining umbrella services. DNS Umbrella has supported many of the contractors and freelancers looking to work with Umbrella services.
At DNS Umbrella we always create the things in a manner that an individual can grab it as an opportunity and will be able to earn the benefits linked with it.
Also See: Understanding Umbrella Payslip – How To Check If I Am Being Paid Correctly