The choice between contractor umbrella or a limited company in 2020
When you are thinking about getting into contracting, you have to make a pretty big decision. This decision is the choice between choosing contractor umbrella or a limited company. There are lots of differences between the two which we will begin to go into and explain shortly. However, we are going to reiterate the point that choosing which one can be a difficult decision which we will help make for you. So, make sure you have your reading glasses on as we delve into this difficult topic.
What is a limited company?
To be brief, a limited company is what is known as a separate legal entity through which you conduct all of your business affairs as a director of the limited company or a shareholder. Therefore, the company is separate from you and possesses its own bank account and assets. This means that any contracts are between the company and the client, not you and the client, in this way we see that any profits or losses made belong to the company.
One thing of note, is that there is a small fee associated when you decide to set up your own limited company at Companies House and certain reporting requirements. You will also have to annually submit your accounts and other administrative documents, as well as deadlines for paying corporation tax that are 20% of the company’s profits after all of the expenses you submit are taken into account.
Here are a few pros and cons of using a limited company as a contractor
A limited company is the most efficient way of working within the boundaries of tax.
You personally keep control of all the financial affairs that you have within a limited company.
You have an extensive opportunity for tax planning.
You will be given access to the flat rate VAT scheme.
If you are currently earning a low amount of income then a limited company isn’t for you.
One of the things that could put someone off a limited company is a large amount of paperwork.
What is a contractor umbrella company?
With the similar amount of briefness in our segment on a limited company. A contractor umbrella company acts like a form of employer for contractors to work on temporary contracts and assignments within their field of expertise. Contracts are then seen between your clients and the contractor umbrella company, who then pays you through the PAYE system of pay.
With a contractor umbrella company, the contractor will sign a full contract of employment between themselves and the contractor umbrella company in question. The contractor will then receive all of the benefits that come with employment, these include: Statutory Maternity Pay, Statutory Paternity Pay, Statutory Sick Pay, holiday pay and the pension scheme.
Some contractor umbrella companies even offer their contractors additional benefits from private medical care, rewards and benefits as well as access to certain welfare services and counselling. Of course, this all depends on the contractor umbrella company themselves and what they wish to provide extra for their contractors.
Here are a few pros and cons of using a contractor umbrella company
You won’t have to do all of the paperwork as the contractor umbrella company will do it for you
If you are looking for more short-term contracts this is ideal
A very easy to use system, all you have to do is enter your timesheet and the expenses due to you and then wait to be paid!
No further taxes to pay as all of the tax and National Insurance will be deducted when you receive your pay.
Your salary will be subjected through the full PAYE tax and National Insurance schemes
The contractor umbrella company first collects the money from the client and then pays it to you
Which is better for you?
If you have read all of this information and you have yet to decide which is best for you, then that is absolutely fine. At the end of the day you have to make that decision for yourself as it is your life that will be changing for the (hopefully) better. However, if you think you need to get in touch with an expert on this then you can always get in touch with us here at Comparison Contractor
Simply fill out one of the many forms across our website and we will get back to you as soon as we can. All you have to do is take that leap forward to us and we will give you all of the expert advice you need to contracting, contractor umbrella and limited companies as we are here to help you.
Comparison Contractor is always here to help that is why we have been known as a company that prides itself on expert advice and understanding when it comes to contractor umbrella questions.