Umbrella and limited company comparison

[sterlingtimes]

When this issue has been broached posters have been referred to previous postings. I have looked at those previous postings and can't find an answer.

What I want is an explanation of the mechanics that make limited company approach more lucrative than the umbrella approach.

To make matters simple, I would like to address the model that pay 100% salary and 0% dividends.

Is the 5% that is deducted as expenses to cover accountancy and similar direct costs, or is the 5% an additional benefit that doesn't need to be quantified?

Is there anywhere where an illustration of the two models can be viewed side by side?

[Mark Snowdon]

Brolly vs ltd

To make matters simple the key difference is that if you have a ltd you control what happens to your companies money. if you are under a brolly you are on paye with varying expense allowances - often with varying levels of dubiousness.

As regards the 100% salary/0% dividend comparison - it is pointless. Why choose a comparator which is so flawed ? Shouldnt you be asking which is better for your specific circumstances ? (which you have failed to provide any info on)

There are lots of threads giving information in general terms and in response to specific situations.
If you need something generic then try the IR and the ir35 websites.

[sterlingtimes]

Re: Brolly vs ltd

Thank you.

I will seek specialist advice. I was just trying to get some sort of an idea of the basic parameters. I'm sure that it's easy once the mechanics are understood, but it's not so easy evaluating the options from base zero.

[Mark Snowdon]

brolly vs ltd

Sterlingtimes,

In most circumstances you are better off as a ltd.

What contract duration do you have ? Do you intend to contract long term ? Will you be ir35 caught ? - may become irrelevant in a couple of months. Are you going to be a real business or just a temp ?

Give some information on your circumstances and you will get sensible advice. Without it there isnt a straight answer

[DadSteve]

Re: brolly vs ltd

The way I look at it, if you want to maximise your earnings, then run your own limited company yourself with the help of a good accountant advisor, ideally one receommended to you by someone in similar circumstances.

Using an umbrella company is easier, but you have less control over your affairs. The umbrella company will tell you that you will take home more money using them, but this not necessarily the case. This is after all a sales pitch in which they make a slew of assumptions about how you would run things yourself. The calculation to compare the two situations is complex, unique to your situation, and only really accurate retrospectively. In an umbrella company you simply follow the system they provide you with and they deal with all the invoicing, bookkeeping and taxation admin and just pay you the money you can keep via wages and expenses (some of which are often close to the edge of legitimacy). This obviously saves time and admin, requires little decisionmaking or uncertainty over whether you're doing things right. The major downside is that you are not really in control of your money or how your affairs are being run. You trust them to pay you your dues - legally, you are just their employee and any money they invoice your client/agent for your work is theirs, not yours. If they stop paying you on time you have limited rights, and they go through the hoop for any reason, you could lose out. They will of course be charging you a chunk of money every month for using their service but the argument is that this is more than offset by savings in tax and other areas, and this is mostly true.

A third option is to have your own limited company, but use one of the many contractor accountancy services out there (like www.jsagroup.co.uk) who will do most of the admin and decisionmaking for you and provide you with a bookkeeping system to follow. This way you still have ownership, but you have to do everything their way (or there's no point paying them!), which is fine as long as your happy with the way they do things. The big downside of these is they're expensive. They're very popular though. I prefer this option to an umbrella.

[FamosAmos]

Re: brolly vs ltd

I think that the future may hold an interesting balance. I predict a situation where true entrepreneurs will find a way to work within the tax system sucessfully and the balance of temp staff (contractors in the many forms) will be with some form of "employed" service company. Not sure the "big" accountancy providers in this context will survive as the downturn in prices they can charge for this make it simply not profitable for them.

[Work2Live]

Re: brolly vs ltd

I agree entirely that's why i just hung up my contracting boots after 15 years and setup my own lifestyle breed of management company- by freelancers for freelancers!! work2live.co.uk, am I allowed to say that? Sorry it's just that I'm very keen to help like-minded individuals overcome all the cr*p thats peddled by some 'ir35 solutions'. I'm sick of being ripped off and that's why i doing something about it [gets off soap box].

[freshblue]

Hmmmm

No mention of costs on your site; something to hide? More than P4??

[fiddleabout]

Re: Hmmmm

> work2live.co.uk, am I allowed to say that?

No - sorry red card for that one - next thing you know somebody will be putting up a shedload of links and then where would we be ?

Mark
www.************.co.uk
www.kwikbreaks.co.uk
www.*********.co.uk
www.*******.co.uk
(and others)

[Contractorumbrella]

Re: brolly vs ltd

The major downside is that you are not really in control of your money or how your affairs are being run. You trust them to pay you your dues - legally, you are just their employee and any money they invoice your client/agent for your work is theirs, not yours.

Any reputable umbrella company will hold the contractors' money in trust so that they cannot use it. The only dedcutions from this should be for tax and NI and the umbrella companies fees. Therefore, there should be no risk to the contractors' funds