Limited Vs Umbrella

Sumit Agarwal 08 Jan, 2015

Is Starting a Limited Company the Best Move for Contractors and Freelancers?

Whether to continue as a contractor or sole-trader, go the umbrella route, or take the plunge and operate through your own limited company is a decision you should take with some care. This table may help you to decide: take a look at the options, go through the IR35 checklist to check your status, and then request a personal illustration to see which option best suits you. DNS can set up your limited company for you in a day and be there to help you all the way.

Options	Suitability	Advantages	Disadvantages
Limited company	For those ready to take responsibility and who are not afraid of keeping records or working with figures. For those who fall outside IR35: Need to first check their status. For those who have Tax Investigation insurance and IR35 cover and who are not afraid of the risk "disguised employment legislation may pose.	A popular route that agencies are happy to work with. Full control of your money. Monthly return beats that earned through an umbrella company: can be 70–85% depending on your circumstances. IR35 investigation can pose a threat, but with insurance you are protected. See how you can avoid the IR35 threat here. Admin to be done on a monthly basis. Tax paid in advance, so a responsible attitude is essential. Tight cash control required so an organised and determined outlook is desirable.	IR35 investigation can pose a threat, but with insurance you are protected. See how you can avoid the IR35 threat here. Admin to be done on a monthly basis. Tax paid in advance, so a responsible attitude is essential. Tight cash control required so an organised and determined outlook is desirable.

Options	Suitability	Advantages	Disadvantages
Traditional umbrella company	Those without the desire to increase their earnings. Those for whom there is no other option. Those not interested in starting a company, whose agency may not accept other alternatives. Easy to administer, less admin involved. Popular with agencies. Submit timesheets and receive wages. Claim expenses to increase return (although collating expenses receipts take a fair amount of effort). Return of 62–70% depending on your circumstances. Disastrous in terms of tax planning! Return is minimal. Submission of expenses paperwork can be a real bind, worse than managing a limited company. New disguised employment legislation (2014) may impact on contractors working through umbrella companies in the future.	Easy to administer, less admin involved. Popular with agencies. Submit timesheets and receive wages. Claim expenses to increase return (although collating expenses receipts take a fair amount of effort). Return of 62–70% depending on your circumstances	Disastrous in terms of tax planning! Return is minimal. Submission of expenses paperwork can be a real bind, worse than managing a limited company. New disguised employment legislation (2014) may impact on contractors working through umbrella companies in the future.

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About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.

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About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.

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