Paying too much through an umbrella company?

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March 22, 2016
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Type ‘Umbrella Company’ into Google and you‘ll come across an array of outrageous claims, 90% take home after tax probably the most popular line put forward. In reality most umbrellas won’t get close to that – unless they’re breaking the law (tax avoidance) – and in contrast you’ll probably see higher bills thanks to their poor PAYE tax efficiency.

For instance, as an umbrella contractor you’ll still be forced to pay:

Not only that, you’ll also face the umbrella company’s fees. These can range from the costs of processing your timesheets to set fees for joining/exiting the scheme, as well as the cost of an insurance policy – typically a blanket policy imposed on all employees.

Add all the costs up, and you’ll probably take home closer to 60-65% of your earnings. In contrast, by setting up a limited company you could be taking home 75% to 80% of your pay.

Sound appealing? Then read on for a brief run through of what going limited involves…

Firstly, what is a limited company?

A limited company is a legal structure through which many businesses choose to run their affairs. We’re a limited company, as are millions of other businesses – right from tiny firms to treble digit employers – as it’s a structure that brings a number of important benefits. These include but aren’t limited to…

  • Kinder tax rates
  • Greater ability to claim tax relief
  • Limited liability

As a contractor then, going limited makes total sense. However, you’ll need to bear in mind that life as a limited company brings certain legal responsibilities…

The limited company legalities

Prior to making the switch it’s important to know what going limited involves, as by forming a limited company you’ll be legally obliged to do a little more paperwork. By law you’ll need to:

  • Submit annual accounts
  • Submit an annual return
  • Submit a corporation tax and personal tax return

Should you keep on top of your books this needn’t be too much of a concern though, plus you can always outsource these jobs to an accountant if needs be.

Making the switch

Forming a limited company isn’t too much hassle, and you can be trading as one within a day or so. Aside from a little creative thinking (you’ll need to choose a company name…) you’ll need to do some legal legwork to ensure that you’re set up correctly.

As with anything involving tax and law it can appear a bit daunting first, however, a good accountant can dot the i’s and cross the t’s for you – our incorporation package is currently FREE if you sing up to one of our monthly packages! All in all we don’t think that’s a bad deal, given the cost of some umbrella companies!

Umbrella company contractor unsure about your next step? We’re on hand to help on 0161 669 4221 or info@biaccountancy.com

Umbrella sign icon. Rain protection symbol.

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