When embarking on a contractor career, the first big decision you will likely have to make is whether to operate via your own limited company or take the path of using an umbrella company. However, when presented with this question, you may immediately be thinking: what’s the difference?
Limited companyWorking through your own limited company has its obvious advantages, in particular, giving you full control over your revenue. You get paid directly into your business bank account without any intermediary involved, and probably most appealing of all, with lower tax responsibilities for contracts outside of the IR35 legislation. You can typically expect to take home around 70-80% of your earnings. The company director controls how much they pay themselves in the form of salary and dividends in combination, and providing the contract falls outside of IR35, a number of expenses can be claimed.
By going limited, you can:
- Maximise your income
- Increase your employability
- Trade under your own company name
- Have limited liability
Umbrella serviceAs discussed in our last blog, which explained the ins and outs, the umbrella solution takes the hassle away from the contractor. It’s ideal for short-term contracts, and all roles are inside IR35, so there are no worries on that score. All relevant deductions are made at the source with all the paperwork done for you; all you have to do is submit your time and expenses.
Benefits of being an umbrella employee:
- Easy and quick set up in just a few hours
- No admin responsibilities – payroll, invoicing, chasing payments are all taken care of
- No need to worry about tax deadlines
- Ideal for short-term contracts