Working as a self-employed professional is a big decision and there are a number of working options. If you’re choosing between joining an umbrella company or setting up your own limited company, there’s much to consider; ultimately, it’s a question of balancing the responsibility you’re prepared to take with how much of your earnings you want to keep. So which is the better option?
Umbrella companies take much of the effort out of working, but to do so they also take a cut of the payment generated by your services. In practice, this means that the average umbrella company contractor can expect to take home somewhere between 67 and 76 percent of the value of their contract. In contrast, the tax efficiencies on offer when working as a limited company contractor means you can keep anything from 81 to 86 per cent.
The set up process for a limited company includes incorporating the company, setting up a business bank account, arranging insurance cover, and choosing or becoming directors. You won’t need to do any of this working for an umbrella company.
Limited companies give greater scope for tax planning and you’ve a wider range of expenses to claim. However, as an umbrella company employee, you’ll save time as your tax and NI responsibilities will be taken care of by the umbrella company.
If you work under an umbrella company, the company will take care of all the NI and tax paperwork as well as process your expenses on your behalf. If you’re working as director of a limited company, you’re responsible for the admin, which includes correspondence with Companies House.
If you’re working under an umbrella company, you’ll still have control over the assignments you work, but little else. If you work via a limited company, you’ll have much more control over everything you do.
Setting up a Limited Company involves incorporating your company, setting up a business bank account, arranging insurance cover, and becoming a director of your company amongst other things.
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If you choose the Umbrella Company option, this means working as an employee of an Umbrella Company, allowing you to work on assignments that you choose, without the responsibilities of running your own company.