|Service Provider Costs
||You pay a monthly fee to your accountant to manage your company’s tax affairs.
||You pay a weekly or monthly fee (margin) to the umbrella company.
||The most tax efficient way to contract. Most directors take a low salary. No National Insurance is payable on dividends
||Your entire salary is taxed via PAYE. Less tax efficient than working via a limited company.
||If caught, most (but not all) the tax benefits of being limited are lost.
||IR35 is irrelevant, as you are already taxed as an ’employee’.
|Ease of Use
||Monthly admin required to help compile accounts, some annual obligations as company director.
||Very little admin.
||Directors have a number of statutory and financial duties.
||No legal duties.
||Company formation can be completed in a few hours, accountancy set-up should be rapid with a contractor specialist. Registration for taxes (VAT, Corporation Tax) can take a few weeks.
||Instant set-up with a contractor specialist.
||You are the director of your own company.
||You are an employee of the umbrella company.
||Not ideal for short-term contracts, due to admin required to set up and then subsequently close the company.
||Good for short-term contracts.
||Highly flexible, dividends can be timed to maximise use of lower tax bands
||Few tax planning opportunities are available.
|Timesheets / Invoices
||You invoice the agency for work done on behalf of your company.
||You submit your timesheet to the umbrella. The umbrella invoices the agency.
||You have a high degree of control over your business.
|Low earning contracts
||Not generally recommended for contracts paying under £15/hour
||Good for lower-paid contracts.
||You are responsible for ensuring your company and personal taxes are paid on time.
||The umbrella company deducts taxes before you are paid.
||Joining the Flat Rate VAT scheme can be profitable – including a discounted rate in the first year.
||VAT is collected by the umbrella, no extra benefit to contractor.
||Your company needs to pay for business insurances.
||Insurance cover is typically included in umbrella fee.
||Higher scope to offset expenses against the company’s tax bill.
||More restrictive scope to reclaim expenses.
||Essential if you want to run your own business, or expand beyond contracting at some stage.
||You are an employee. Not suitable for trading outside contracting.
||You must open a separate business bank account for your company.
||You only need to keep your own personal bank account.
||All company directors must complete an annual tax return.
||No need to complete a tax return unless you earn untaxed income in addition to your umbrella earnings.
||Conveys a professional image – may be helpful in certain contracting fields (e.g. interim management).
||No particular professionalism attached. Not an issue for many umbrella contractors.
|Testing the Water
||May be better off using an umbrella if going limited appears daunting at first.
||Ideal if you want to try out contracting before making a decision on the best business structure.
||Good if you intend to provide services to multiple clients.
||Not ideal if you plan to work for several clients at the same time.