Hi, my names Daniel and I work for KB Accountancy contractor accountants as part of the marketing team.
In this article I will be discussing why contractors might choose to move from using an umbrella service to limited company, and what the reasons for and advantages of this are. For contractors, working via an umbrella service or limited company becomes a much more tax efficient way to go about contracting. However there are lots of reasons why you might want to move your contract/working arrangements from your own limited company to an umbrella management company such as?
A lot more hassle goes along with owning your own limited company when compared with using an umbrella company such as; Responsibility of being your own director.
Responding to countless communications with HMRC and your accountants.
Legal responsibilities i.e. complying with administrative and financial deadlines demanded by both Companies House and HMRC to avoid late payment deadlines etc. Closing down a limited company can be very time consuming with a dissolution procedure which can potential take between three and six months? An umbrella company will handle all the statutory returns such as PAYE and VAT.? If caught by IR35 the advantages of working via a limited company are greatly reduced as you will have to take funds in the form of a "deemed salary" rather than the salary and dividends mix. ? An umbrella service is more suited if you work short term contracts. ? You can easily use a specialist offshore umbrella company if you wish to work abroad.
Owning and running your own limited company may well lead to a higher net income after the deduction of taxes, but is all the hassle worth it? In my opinion the viability of owning your own limited company depends on the amount of support received from your accountancy practice. A good contractor accountant will take the hassle out of starting and running your own limited company.
As with anything I would advise seeking professional advice from a contractor accountant who will seek the best alternative for working most tax efficiently. Most good contractor accountants will provide this advice for free.
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