If you are new to contracting or freelancing, choosing between working through an umbrella company or setting up a limited company can be difficult. Below, you will find some of the advantages and disadvantages of each of them, so you can figure out what will work best for you.

Umbrella Company

An umbrella company is suitable for contractors and freelancers in any industry on any contract length, whether it’s IT, nursing, graphic design, or construction. You will find contractors typically use umbrella companies if they are on short-term jobs if they are a first-time contractor or working inside IR35.

The benefits of working through an umbrella company:

• In terms of administration, there is practically none. This gives you more time to work on your client base and provide a more efficient service. All you’ll need to do is submit a timesheet
• Umbrella companies make all of their payments through PAYE, meaning IR35 compliance is taken care of
• When you work with an umbrella company, you will effectively be viewed as an employee. This means that you will get the benefits of that, with the freedoms of being a contractor, giving you the best of both worlds
• Umbrella companies are ideal if you are looking to test the waters and want to know whether contracting will work for you

What you may need to consider:

• If you are looking to maximise your pay, this might not be the best option for you. While many umbrella companies retain minimal fees, it is an expense that you could avoid
• Umbrella employees will not qualify for the same tax breaks as a limited company director
• Some of the less scrupulous companies promote tax schemes, and they are easy to fall in to
• If you own a business, the final say will always be yours. However, if you are associated with an umbrella company, they control your finances, and your input is limited

If you would like to speak to our specialist team to find out how Unique Payroll can help you. You can contact us on 01473 461 028 or by visiting https://uniquepayroll.co.uk/

Limited Company

If you’re working outside of IR35, setting up your own limited company is your most tax-efficient option. You will become a shareholder and the director of your own company and be able to pay yourself with a combination of salary and dividends.

The benefits of your own limited company:

• If most of your income comes in the form of dividends, you’ll still be entitled to State Benefits without paying any employer or employee National Insurance Contributions (NICs)
• Confidence is critical in business. A limited company has a feel of professionalism, which can instil confidence in your business
• You have control over your finances and the decisions that come with that

What you need to consider:

• You will need to respond to communications from accountants, HMRC, Companies House, and other organisations. You are also responsible for keeping track of expenses, submitting forms on time, and invoicing your clients
• It’s down to you to conduct regular IR35 reviews to ensure you’re on the right side of tax law
• As a company director, you are responsible for obtaining your business insurance, and you do not receive employee benefits

Our accounting partners, An Accounting Gem, have helped countless contractors and freelancers set up and then run their own limited companies. If this is the route you think will work best for you, they can be with you every step of the way. To find out more, give them a call on 01473 744 700.