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Contractors - at a glance guide for moving from your Limited Company to an Umbrella

Published 9 months ago by Elkie Holland
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Moving from your Limited Company to an Umbrella?

Here’s our at-a-glance guide to the differences to  help you manage the change:

Issue

Limited Company

Umbrella

 Administration

You are responsible for all administrative tasks including making tax and national insurance payments to HMRC, meeting filing deadlines, responding to communications from accountants/HMRC/Companies House, and running a company bank account.

The only administration undertaken by you is logging timesheets and expenses. All tax reporting is done by your umbrella.



 Insurance


You must organise your own insurance.


Your umbrella will provide you with adequate insurance for your work and this is usually included within the margin you pay.



 Taxes



A limited company can be the most tax efficient trading vehicle if you pay yourself a basic salary and draw the remainder of your pay as dividends.  You will have to submit your own self-assessment tax return.


An umbrella may not be the most tax-efficient way of trading as all income is taxed through PAYE. However, this involves very little work on your part. 


 Benefits


You may be able to claim certain types of expenses tax-free.


Since 2016 umbrella workers have not been able to claim expenses tax-free. However, umbrella workers get full employment rights including sick pay and workplace pension. Many umbrella’s also offer added features and freebies with their service.

Umbrellas like Brooks Employment Management Ltd (BrooksEM) offer contractors other benefits like Perkbox - an employee benefitsprogramme which allows you to take advantage of thousands of discounts at high streeet shops, online retailers, cinemas, bowling alleys, restaurants, and more !


 IR35



IR35 is one of the most contentious issues for limited company contractors as it affects remuneration structure and determines whether you are subject to restrictions on travel and subsistence claims. There are also repercussions for getting IR35 status wrong.


IR35 is not applicable to umbrella workers as you are classified as you are classified as an employee of the umbrella and your entire income will be taxed under PAYE.


 Cashflow


Your accountants can only run your payroll and/or recommend dividend income based on a prudent estimation until your accounts are finalised. As a limited company you must discuss your cash flow requirements with your accountant.

All income is taxed under PAYE and the umbrella company will transfer the rest of your earnings to you.  You will receive your entire net income for the month immediately as if you were employed by the client directly.



 Privacy


All limited company details and their annual accounts, including directors information, can be obtained by the general public via Companies House.

Your personal details will be kept private and confidential by the umbrella company in compliance with GDPR.


 Freedom of   Choice

Freedom to choose when and where you work. Might have complex taxation issues if you accept a contract overseas or once which falls inside IR35.

By choosing an umbrella company equipped for offshore assignments you won’t need to take any action and IR35 status is irrelevant.

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