Umbrella company or limited company

Anyone new to contracting may want to consider setting up a limited company as opposed to operating under an umbrella company.


Under an umbrella arrangement a contractor effectively becomes an employee of the umbrella company and is paid a salary less a deduction for the umbrella fee which can be very expensive. Anyone planning to use an umbrella company should always check what their charges will be before entering into the agreement.


It is also important to check the terms and conditions of any alternative proposed contract operating via a limited company, to ascertain if these fall under IR35 legislation.


For contracts outside of IR35, setting up a limited company is always the most tax efficient way of working. As a director and shareholder you can pay yourself a combination of salary and dividends and substantial tax savings can be made.


For contracts falling inside of  IR35, a limited company can still be advantageous usually if the value of the contract is high and is not expected to be for a short period and the accountants fee is less than the umbrella fee. Pension contributions should also be taken into account as they are allowable deductions for IR35 if paid by the limited company.


Decisions should be based on individual needs and if you need more information seek professional advice.


Should you need more information, please contact Jacqueline Bilsborrow.

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