Umbrella vs Limited Company: What to know when making the move this new tax year

Everything contractors need to know about Umbrella vs. Limited

 

Limited Company vs. Umbrella: What’s the difference?

Let’s first look at what an umbrella company is.

Operating through an umbrella company is often considered the easiest, most hassle-free way of contracting.

The umbrella company employs the contractor, however, they still maintain the freedom to choose which contracts they work on, when and with which clients.

As the contractors’ employee, the umbrella company will pay the contractor a salary, work out and deduct their tax through the pay-as-you-earn (PAYE) system, process their invoices and give them statutory benefits, including holiday pay, sick pay, maternity/paternity leave and a workplace pension.

In exchange, the contractor pays the umbrella company a fee. 

Although this is an extra cost to contractors, it is worth considering that the umbrella company fee is considered a legitimate expense by HMRC and therefore can be deducted from your salary before it is processed through PAYE.

The second option is to operate through a limited company.

With this route, rather than being an employee, the contractor operates on a self-employed basis, usually through their own limited company.

As a self-employed, off-payroll worker, the limited company contractor will instead be required to file for self-assessment and pay tax after they have received their fee from the client, rather than paying as they earn like an umbrella contractor.

Self-assessment can often be tricky and complex, so many limited company contractors instead opt to use the services of an accountant to help with calculations. It is worth bearing in mind that this is an additional cost to the contractor.

Limited company contractors must also ensure they have enough money to cover their tax bill at the end of the year, keeping a portion of their earnings aside for this which requires careful planning.

Furthermore, a limited company contractor also takes on the responsibilities of setting up and running a business, taking on all tasks associated with this, such as admin, paperwork and invoicing which can take up a lot of a contractor’s time and energy.

Another factor to consider is that self-employed contractors aren’t entitled to statutory benefits like umbrella company contractors are. This means that if they should unexpectedly fall ill, or even just want to take a break, they will have to cover the costs of doing so themselves.

The final factor to account for when deciding between limited company vs umbrella is IR35.

IR35 is a piece of legislation that was set-up to stop workers such as contractors from operating as employees but taking advantage of the tax and National Insurance benefits enjoyed by the self-employed.

Recent changes to IR35 have made it the responsibility of the client in the private sector, and not the contractor, to deduct the contractor’s tax and National Insurance contributions before they are paid their fee.

This will lead to thousands of contractors being wrongly classified under the legislation, meaning they will pay more in PAYE tax contributions than they need, without benefiting from the perks of employment.

This is a major drawback of the limited company option and has meant that thousands of limited company contractors operating within the private sector are now looking to make the move to umbrella.

Making the move to umbrella: everything you need to know

If you are now considering making the move to umbrella, there are several factors you must account for when choosing which umbrella company to work with, including:

  • Service level: every contractor has a different set of needs and requirements, meaning it’s important to look at what services different companies offer in order to find the best fit for you.
  • Take-home pay: contractors work hard so inevitably, take home pay will have an impact on which umbrella company you opt to use. That’s why we make it easy for contractors to compare umbrella companies based on take-home pay, offering a clear breakdown of how much you will pay in tax, National Insurance, pension contributions and umbrella fees.
  • Umbrella fees: likewise, it’s important to look at how much you will pay in umbrella company fees, to ensure you are getting a fair deal. Again, our umbrella calculator makes it quick and easy to compare companies based on how much they charge in fees and what the contractor will receive in return for the fee.
  • Reputation: it’s important that you do your research to ensure the umbrella company you are choosing has a sound reputation and is trust Although the majority of umbrella companies are, just as in any industry, there are those that aren’t. That’s why we only ever work with umbrella companies we know we can trust, so you can rest assured that you are making the right decision.

Ready to find the best umbrella company? Umbrella Supermarket’s umbrella calculator is here to help

If you are looking to make the move to umbrella in 2021, our quick and easy to use umbrella calculator can help you compare umbrella companies so you can find the best umbrella company for you.

We’ve helped thousands of contractors find the perfect umbrella company for their needs and requirements, whatever they are looking for, whether it’s help with things like childcare credits or same day payments, we can help you find it in a matter of minutes.

Simply start by entering a few key details and we will do the rest. Ready to find the best umbrella company for you?

Would you like more information on Umbrella vs Limited Company: What to know when making the move this new tax year?

Explore More Resources

comparing umbrella companies

What To Look Out For When Comparing Umbrella Companies

Working through an umbrella company has become an increasingly popular option for contractors in the UK.

An umbrella company makes contracting easy and hassle-free for contractors, saving them headaches on everything from tax, payroll, insurance to dreaded IR35.

However, with are so many umbrella companies out there, choosing the perfect one for you is no easy task.

To help, Umbrella Supermarket have put together this handy on what to consider when comparing umbrella companies, so you can find the best one in 2021.

umbrella company

How Does an Umbrella Company Work?

In light of recent IR35 reforms that came into force in April 2021, many limited company contractors are now thinking about making the move to Umbrella.

However, understandably, many will want to know more about umbrella companies and how they work before taking the leap.

To help these contractors decide whether Umbrella is the best move for them, Umbrella Supermarket have put together this ultimate guide on everything there is to know about umbrella companies in 2021.

Using an Umbrella Calculator

The Pros of Using an Umbrella Calculator

There are many advantages to using an umbrella calculator for contractors.

Umbrella calculators allow you to quickly compare thousands of umbrella companies across the UK, offering a clear overview of what you will receive from the company, including everything from your take-home pay, what benefits you will receive, and what services the company will offer.

To help contractors find out more, Umbrella Supermarket outlines the main benefits to using an umbrella calculator in 2021.

umbrella company vs paye

Umbrella Company vs PAYE: What should you choose?

Umbrella company vs PAYE is a question asked by thousands of contractors.

After all, it’s a big decision to make that will have a direct impact on your contracting career and day-to-day life, so it’s not one that should be taken lightly.

To help every contractor make the right decision for them, Umbrella Supermarket has put together this insightful guide outlining the key differences between umbrella and PAYE and the advantages and drawbacks of each.

avoid ir35

How can I avoid IR35?

As a contractor, you will most likely know about IR35 and upcoming reforms from April 2021.

These changes to IR35 legislation are set to badly impact many self-employed contractors in the private sector, so thousands are understandably worried. After all, getting caught out by IR35 can mean you end up paying more in tax than you need at the same level as an employee, without receiving the benefits of being employed, such as statutory rights.

umbrella company costs

Umbrella Company Fees: How Much Should You Pay?

When deciding which umbrella company to work with, the fees they charge will inevitably play an important role in the decision-making process.

Umbrella company fees are taken directly out of the contractor’s income, so it is only natural that contractors want to ensure they are getting a fair deal.

To help contractors understand umbrella company fees, from how they are charged, what they will receive in return, and how much they should be paying, Umbrella Supermarket outlines everything there is to know about umbrella fees in this handy guide.

umbrella vs limited

Pros and Cons of Limited vs. Umbrella

Big reforms to IR35 legislation are set to come into motion from 6th April 2021 which will impact the thousands of self-employed, private-sector contractors out there.

For this reason, many of the contractors that currently operate through a limited company will be considering the umbrella company route as an alternative.

If this is true for you, it’s important to do your research to find out whether limited company vs umbrella is the best option for you in 2021.

To help make the decision that little bit easier, in this guide Umbrella Supermarket outline the key differences between limited vs umbrella, so you can get on the right track.

2021 budget

What Does the 2021 Budget Mean for Contractors?

On 3rd March 2021 Chancellor Rishi Sunak unveiled his Budget in the House of Commons, outlining the government’s tax and spending plans for the year ahead.

Sunak announced a variety of measures he will put into place to help businesses and jobs that have suffered through the pandemic, as well as outlining a plan for the long-term recovery of the economy.

However, the question many contractors will be asking is how the Budget will impact the

umbrella company

5 Benefits to Working with an Umbrella Company

Contracting through an umbrella company has become an increasingly popular option for contractors across the UK in recent years. After all, it is a route that offers contractors a range of benefits over other paths such as working through PAYE or being self-employed.

 

 

ir35 reforms

Contractor’s Guide to IR35 in 2021

From April 6th 2021, reforms to IR35 legislation will come into force, impacting the lives of thousands of self-employed contractors.

Inevitably, contractors across the UK are concerned about upcoming reforms and how these will affect them. To help, in this guide, Umbrella Supermarket look at what these changes to IR35 entail and how they might impact you as a contractor in 2021.

 

compare umbrella company fees

How to Compare Umbrella Company Fees

If you are considering joining an umbrella company in 2021, or have been contracting through one for a while and want to ensure you are getting a good deal, it is important that you know how to compare umbrella company fees.

What you pay in income tax and National Insurance will be the same regardless of which umbrella company you choose, however the fees the umbrella company charges can make a big difference to your take home pay.

At Umbrella Supermarket, we know that every contractor wants to get a fair deal. To help, we explain how umbrella company fees work and how you can compare them to find the best deal.