Umbrella to a Limited Company

My Ltd with Bright IdeasSwitching from an umbrella to a limited company

Changes to the way contractors can claim tax relief on travel and subsistence expenses are on the way. And these changes could mean you paying more in tax.

If you’re currently trading through an umbrella company, then now’s the time to look at moving to become a limited company, with all the tax efficiencies this offers.

My Ltd with Bright IdeasHow the changes could affect you?

From April 2016, the tax relief on home-to-work travel won’t be available to umbrella companies – and that means you paying more in tax which lowers your take home pay.

The new legislation only affects workers under the direct control, supervision and direction of their end-client, or those working inside IR35. By becoming a limited company, whilst operating outside of IR35 and the direct control of an employer, you can still claim these travel and subsistence costs through the company.


Umbrella company contractors

The changes outlined in the 2015 budget will restrict the ability of umbrella company contractors to claim tax relief on travel and subsistence expenses.

Until now, as an umbrella company contractor, you were able to claim a limited number of travel and equipment expenses. Under the new rules, your ability to claim travel and subsistence costs as tax-deductible expenses has gone.

Limited company contractors

The changes to tax relief on expenses won’t affect you if you’re a limited company contractor who’s contracting outside of IR35.

There is a catch, though. If you’re a contractor who works as director of your own limited company, and does this inside IR35, you will be caught by these new rules and will lose your ability to claim tax relief.

  • Earn more

    As a limited company, you pay corporation tax, rather than PAYE income tax.

    The main rate of corporation tax is 20% rather than 40% for the higher rate of income tax.

  • Your business is separate

    Your personal wealth is separate to your business finance.

    Your business liability to your personal wealth is reduced

  • Tax efficient

    As a limited company, you pay tax through the corporation tax system.

    This is an opportunity to claim tax relief and and use tax planning to minimise costs.

  • Claim more expenses

    There are a whole range of expenses that are tax exempt.

    You'll be able to save money on more than just travel and subsistence costs.

  • You’re the MD

    You are now a Managing Director. Sounds good, doesn't it?

    You're in full control of your career and the future of your business.

  • Set to grow

    In case you ever want to, you have all the foundations in place to grow your business.

    There'll be less stress when you want to start hiring and expanding.

Talk to us about moving from an umbrella to a limited company

Becoming the director of your own limited company is a great way to avoid the impact of new changes to tax rules on expenses. So, if you're serious about a long-term career as a contractor or freelancer, or if you can see a time when you may want to expand your business, becoming a limited company is definitely the way to go.

And that's something we’d be happy to help you set up. Give us a call on 0161 669 4221 or fill out the form below to join with Bright Ideas.


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