Limited Company

Limited companies are incorporated, meaning they have their own legal identity and can take legal action against or own assets in their own right. The ownership of a limited company is split up into equal sections called shares, and whoever owns one or more of these is called a shareholder.

Companies House

It is stated that over 4 million limited companies are registered in the UK, and a staggering 500,000 new companies are integrated each year. So, what companies house do is they register all the companies information and publicise it, also keeping a record of all the companies. When analysing the companies act 1985 it suggests that limited companies are demanded to file details in. You will be required to send the companies house for example.

Umbrella Company vs Limited Company

This has been an ongoing topic that is a big decision for individuals who are planning to be contractors. Both umbrella company and limited each produce two of the most familiar business systems that contractors use. But, what you want to find out is what option is right for you?

We have set out a guideline of how you can decide which solution is best for you. You should be aware that there is no right or wrong option, however you can increase your take home pay depending on what route you select.

 

Few factors for Umbrella Companies

  • Contractors who earn less than £110 per day (approximately)

  • Contractors who may return to permanent employment soon tend to go forward with umbrella.

  • Contractors who are in a short-term contract, so this could mean days, weeks or months.

  • Contractors who want to be paid quickly.

  • Contractors who work in the public sector mainly go forward with umbrella companies.

  • Contractors who prefer a hassle-free payroll solution, so individuals who would want less stress and an easy payment scheme.

  • Contractors who are not considered as a permanent employee.

  • Contractors who want to be paid into their personal account.

  • One of the main factors is, contractors who want their deductions are made before they’re paid.

Few factors for Limited Companies

  • Contractors who have a long contract, so for more than 6 months.

  • Contractors who don’t tend to stay with one client and move around.

  • Contractors who travel often and want to reclaim their expenses at the end of the tax year.

  • Contractors who earn over £120 per day (approximately).

  • Contractors who work in the private sector mainly go with the limited companies.

  • Contractors who have not worked for any previous clients before.

  • Contractors who are not working for a client longer than 2 years go with limited companies.

  • Contractors who have not been considered bankrupt within the last 6 years go with the limited company route.

What contractors should remember is that, there is no right or wrong option, and as a result both routes will be beneficial to you.

Overall, the choice to work as a limited company or for an umbrella company will rely on how you plan to work and who with.

 

Working under an umbrella company will result in the contractor having minimal control over their business and how often the contractor is paid, however you do not have to worry about chasing payments, accountancy admin and client negotiations. An umbrella company is a solid choice if you do not have any experience as a contractor and want to try it out with a client. Furthermore, if the contractor is on a lower daily rate there could be minimal difference in tax efficiency. A limited company is also a good option depending on if you’re committed to contracting and plan to work with more than one client.

© 2014-2019 | Payroll-Supermarket.com | All Rights Reserved