For professionals wishing to break free from the shackles and demands of working for one organisation, contracting is an established route taken by hundreds of thousands of experts over the last two decades.
As with any decision, going solo comes with an upside and a downside. One of the downsides to contracting is the administration burden that comes with organizing your own finances. Luckily thousands of contractors have taken the plunge before you and asked the question “what is the best way to account for my time, invoice for my work, get paid and ultimately pay my taxes?”.
By far the two most popular answers to that questions are to:
In this article, Umbrella Supermarket looks at the advantages and disadvantages of both types of structure.
Limited company contractors nearly always take home more after tax than umbrella contractors and full-time employees even if they’re earning the same money for their work. Although that advantage has been greatly reduced through the removal of the tax dividend credit in the mid-2010s.
Limited company contractors are more in control of their payroll than umbrella contractors. That said, with great power comes great responsibility so it’s always a good idea to engage an account to help you carry the load. An accountant can help you submit financial documents (like your annual accounts, self assessment form, and CT600 form) and pay your taxes on time. In fact, using an accountant will greatly cut back on the time required to fill in and submit the necessary documentation associated with running your own limited company.
Limited company contractors have a much greater degree of independence and flexibility. They aren’t going to be chased for a timesheet by their umbrella, and they can put multiple income sources through their Limited company. For example if you’re an IT contractor with secondary sources of income, you can also use your Ltd co to bill for this work.
As we alluded to in the previous section, there are significantly more administrative duties and obligations as a limited company director than as an umbrella contractor. There is additional paperwork too which you would normally expect with being self-employed including the issuing of invoices, chasing up late payments, keeping your bookkeeping software up to date, liaising with your accountant, organising insurance, and more.
Limited company contractors should expect to spend 15-30 minutes a day keeping on top of paperwork and other responsibilities. A failure to do so will mean that catching up so that your records are fully up-to-date becomes time-consuming, stressful, and confusing.
Not only should you expect to do extra book keeping but as a director of a Limited Company you’ll also be expected to file accounts and fill in a self-assessment at the end of the year too.
Contractors using an umbrella company become the employees of that umbrella – even if they act like self-employed contractors. Nuances of definition aside, there are some distinct advantages to working as an employee of an umbrella company.
For a start, getting paid (less tax) happens just like when you were a permanent employee. In fact you not only get paid the same way, but your work will be covered by your Umbrellas insurance policy and as required by law your umbrella will provide you with access to a pension scheme.
The process of getting paid through an umbrella is far less complex than via a Limited Company. When on a placement with a client, you submit your timesheets to your umbrella together with your expenses – this is normally done online.
From the records you submit, your umbrella then raises an invoice for your work to the client. When the invoice is paid, you are paid a salary from which a number of deductions are made including income tax, both forms of National Insurance, expenses, other agreed costs, and the umbrella company’s fees, all of which are detailed on your payslip. At the end of each year, your umbrella company provides you with a P11d and a P60.
You have none of the financial responsibilities that a limited company contractor has. You do not have to issue invoices nor do you have to chase them. You don’t have to worry about IR35, marketing, accounts, insurance, and more.
For all of the administrative burdens and responsibilities you will be glad to forego, there are a number of sacrifices you have to make. The biggest of those sacrifices is what you are left with after tax and other fees. A limited company contractor earning £60,000 a year will pay approximately £8,000 less in tax and other charges than an umbrella contractor will if the contract is outside IR35.
If your umbrella company fails, you may lose any money which it is handling on your behalf. HMRC may still require you to complete a self-assessment form and while, as an employee, you do have holiday entitlement, you will probably end up paying for your holidays yourself out of their fee (different umbrellas use different approaches on holiday pay – make sure you find a scheme that you feel happiest with).
If you believe that the vast majority of your contracts will be within the scope of the IR35 rules (we’ve written about this before), there is a strong argument to choose the umbrella route.
The difference in pay between what an umbrella contractor earns and a limited company contractor earns where the work carried out is within IR35 is far smaller than the difference we mentioned earlier in this article. Many argue that the lack of hassle and IR35 security offered by an Umbrella Company is the future for any contractor caught by IR35.
Umbrella contractors do not have to worry about IR35 in general whereas it’s becoming more and more of a pressing issue for limited company contractors and their clients, especially clients in the public sector or at medium- to large-sized businesses.
There are hundreds of umbrella companies in the UK right now competing for your business but how do you sift through all of the offers to find the best one for you? The answer is to start your search through Umbrella Supermarket.
To start your search, please click here.
Any contractor considering switching to an umbrella company will want to know how to find the best provider to work with.
Although you could spend your precious time and energy searching the web for the best umbrella company, there is an easier way – using an umbrella calculator.
In this guide, Umbrella Supermarket explains why every contractor should use an umbrella calculator in 2021.
If you are considering contracting you will need to decide on PAYE or umbrella.
It can be a difficult decision to make and contractors will inevitably be questioning which option will be the best for them.
To help every contractor get on the right track for them, in this guide Umbrella Supermarket looks at PAYE vs umbrella, outlining the key differences and how this will impact you.
There are many reasons that contractors across the UK opt to work under an umbrella company.
Umbrella companies offer an easy way to contract and remove the need for the contractors to worry about the burdens of admin, finances, tax and IR35, all things that limited company contractors have to deal with.
For this reason, many contractors will be weighing up their options and questioning whether it is worth using an umbrella company in 2021. To help make the decision that little bit easier, Umbrella Supermarket has put together this guide on the pros and cons of using an umbrella company.
Any contractor that is considering operating through an umbrella company in 2021 will need to understand Umbrella Company fees - from why an umbrella company charges fees, how they are paid to how much the contractor will pay.
In this guide, Umbrella Supermarket answers those all-important questions to help every contractor know exactly where they stand when it comes to umbrella company fees.
If you’ve made the decision to contract through an umbrella company in 2021, you will next need to find an umbrella company that’s right for you.
After all, there are lots of umbrella companies out there, so how do you know which one to choose?
To help you find the best umbrella company for you, in this guide Umbrella Supermarket outlines what makes a good umbrella company, so you can rest assured you’re making the right move.
One of the many advantages to operating through an umbrella company for contractors is that they become an employee of their chosen provider.
In turn, this means that the contractor will be automatically enrolled onto the umbrella company’s workplace pension scheme.
To help contractors find out more about umbrella company pensions Umbrella Supermarket has put together this handy guide.
If you are considering contracting through an umbrella company you will naturally have questions and queries over how they work.
After all, making the move to umbrella can be a big step for contractors. To help, in this guide Umbrella Supermarket explains how to get started with an umbrella company and share our top tips for using one in 2021.
PAYE or umbrella is a question asked by every contractor. Which one you opt for will have a big impact on your contracting career and lifestyle. So, it's important to make the right decision for you.
To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.
One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.
To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.
Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.
One way that contractors can work is through an umbrella company.
Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?
To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.
There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.
After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.
However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.
To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.
If you're considering making the leap to contracting, you will understandably want to know how much you will have to pay in umbrella company costs. After all, this amount comes directly out of the contractor’s pocket, so it’s important to be clued up on how much you should expect to pay.
To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.
