Limited company or Umbrella

[Normski1989]

Why haven't you considered the option of just being a sole trader?

Most tax/NI benefits of being a limited company will vanish in April when the dividend rules are changed. Umbrella companies make life a bit easier but some take way too much out of your pay for the little work they actually do.

It really depends on the size of business you plan on having... larger businesses will be better as a limited company. The added benefit of limited liability is also helpful as the construction industry can be very unstable.

I would advise seeking the advice of an accountant... most of which will offer a free initial consultation.

Based on the company that I work for, the average fees for a sole trader are about £200-400 per year. The average fees for a limited company vary from £500-1500 depending on it's size, if its VAT registered etc...

 

[Normski1989]

Also, keep in mind that several limited companies are now forcing their clients to register as a limited company. This is because they're scared of being caught under IR35. it's happened to numerous clients of ours. They now have the fees of a limited company and still have to pay a percentage of their income to the umbrella company.

 

[NooBHA]

Also, keep in mind that several limited companies are now forcing their clients to register as a limited company. This is because they're scared of being caught under IR35. it's happened to numerous clients of ours. They now have the fees of a limited company and still have to pay a percentage of their income to the umbrella company.

It is not only IR 35 that employers are wary of. Some small employers who take on Contractors don't want to take them as employees because of the New Work Place Pension Rules. They also don't want to have to set up Company pension schemes and have to pay pension contributions for them.

The long and short of it is. They should set up a Limited Company, which can easily be suspended as and when they go back into full time employment.

 

[Normski1989]

It is not only IR 35 that employers are wary of. Some small employers who take on Contractors don't want to take them as employees because of the New Work Place Pension Rules. They also don't want to have to set up Company pension schemes and have to pay pension contributions for them.

The long and short of it is. They should set up a Limited Company, which can easily be suspended as and when they go back into full time employment.

A subcontractor working under a 'contract for services' is not classified as a worker and therefore not entitled to be enrolled under the new work place pension rules. But I still agree that a limited company is the best way to go. I'd avoid umbrella companies. Running a small limited company isn't as difficult as some people make it sound, especially if your accountant is available to offer guidance.

 

[Alex Alex Dawson oo! oo!]

Also, keep in mind that several limited companies are now forcing their clients to register as a limited company. This is because they're scared of being caught under IR35. it's happened to numerous clients of ours. They now have the fees of a limited company and still have to pay a percentage of their income to the umbrella company.

Clients only being prepared to contract a limited company isn't new though, not in our field anyway, and pre-dates IR35.

 

[Soulman]

Why haven't you considered the option of just being a sole trader?

Most tax/NI benefits of being a limited company will vanish in April when the dividend rules are changed. Umbrella companies make life a bit easier but some take way too much out of your pay for the little work they actually do.

It really depends on the size of business you plan on having... larger businesses will be better as a limited company. The added benefit of limited liability is also helpful as the construction industry can be very unstable.

I would advise seeking the advice of an accountant... most of which will offer a free initial consultation.

Based on the company that I work for, the average fees for a sole trader are about £200-400 per year. The average fees for a limited company vary from £500-1500 depending on it's size, if its VAT registered etc...

I have been a sole trader for over 20 years. Some agencies will only take Umbrella or Ltd not CIS, which is why I knocked them back. I have set up a Ltd company now just in case, but managed to swerve the leeching agencies and go direct on CIS with a firm

 

[Alex Alex Dawson oo! oo!]

A subcontractor working under a 'contract for services' is not classified as a worker and therefore not entitled to be enrolled under the new work place pension rules. But I still agree that a limited company is the best way to go. I'd avoid umbrella companies. Running a small limited company isn't as difficult as some people make it sound, especially if your accountant is available to offer guidance.

Absolutely agree with this. I wouldn't even consider being a sole trader; keeping the business totally separate from your own (and others) personal assets is a no-brainer for me.

 

[Arthritic Toe]

Have been Ltd for almost 10 years - defo look at VAT reg o the flat rate scheme as this should cover your account fees on their own.
Always thought umbrella's were bad news ...

Be aware tho when comparing the flat rate VAT percentages, that the numbers quoted on the flat rate scheme are as a percentage of gross, whereas the regular rates are quoted as a percentage of net. So whereas you may well be better off under flat rate, make sure you are comparing apples with apples.

 

[Shropshire Seagull]

Be aware tho when comparing the flat rate VAT percentages, that the numbers quoted on the flat rate scheme are as a percentage of gross, whereas the regular rates are quoted as a percentage of net. So whereas you may well be better off under flat rate, make sure you are comparing apples with apples.

Yup, aware of that, but you always come out ahead. My line of business has a VAT return rate of 14.5% so here's the simple maths

Annual turnover £100,000 + 20% VAT = £120,000 invoiced
14.5% VAT return on £120,000 = £17,400
So, in the example above, being on the flat rate VAT scheme has just "earned" me £2,600
It really is as simple as that ....

 

[Normski1989]

Yup, aware of that, but you always come out ahead. My line of business has a VAT return rate of 14.5% so here's the simple maths

Annual turnover £100,000 + 20% VAT = £120,000 invoiced
14.5% VAT return on £120,000 = £17,400
So, in the example above, being on the flat rate VAT scheme has just "earned" me £2,600
It really is as simple as that ....

You always come out ahead? That's definitely not true. It completely depends on the amount of VAT you can reclaim on expenses if you use the standard VAT scheme. Your example is based on having zero expenses to reclaim VAT from. Of course, the flat rate percentage varies in the construction industry scheme depending on the level of material costs.

The flat rate scheme was designed to simplify the VAT return process, not necessarily save money. But sometimes it can be very beneficial.

 

[Arthritic Toe]

Yup, aware of that, but you always come out ahead. My line of business has a VAT return rate of 14.5% so here's the simple maths

Annual turnover £100,000 + 20% VAT = £120,000 invoiced
14.5% VAT return on £120,000 = £17,400
So, in the example above, being on the flat rate VAT scheme has just "earned" me £2,600
It really is as simple as that ....

Well in your case maybe, but not for everyone. If you had made purchases (including travel expenses) with > £2,600 vat content, you'd be better off on standard rate. Yes its simple, but its certainly not blanket advice. It depends on your business. If you are doing any work for clients outside the EU, you probably also want to be out of it.

 

[HalfaSeatOn]

Thanks for comments. I've gone limited rather umbrella. Just working out with accountant if contract/job is in or out of IR35 - sounds like the benefit differential is narrowing with the forthcoming dividend taxation Any recommendations on professional indemnity insurance?

 

[Randsta]

Just as a side note .....don't work for http://www.catchgroup.com/ as they only pay monthly (what agency does that?) ...but only tell you this once your in
f*ckers!

 

[Arthritic Toe]

Thanks for comments. I've gone limited rather umbrella. Just working out with accountant if contract/job is in or out of IR35 - sounds like the benefit differential is narrowing with the forthcoming dividend taxation Any recommendations on professional indemnity insurance?

Its money for old rope for the insurance company. It will never be claimed on. Unfortunately, you need to have it as a condition of most contracts. Having it is also a slight positive factor regarding IR35. Mine is with Caunce O'hara who seem to be as good as any (whilst laughing all the way to the bank).

 

[Herr Tubthumper]

Its money for old rope for the insurance company. It will never be claimed on. Unfortunately, you need to have it as a condition of most contracts. Having it is also a slight positive factor regarding IR35. Mine is with Caunce O'hara who seem to be as good as any (whilst laughing all the way to the bank).

I'd agree with this. Unless your contract stipulates indemnity insurance you will most likely not need it.

 

[Weststander]

A bit under the radar in yesterday’s mini budget - the 2017 and 2021 ‘IR35’ rules are repealed with effect from 6th April 2023.

[In the past I recall many angry nsc posters on this subject].

Two groups will benefit:

A. Businesses that engage contractors will no longer have to spend time and money on compliance. It will no longer be their shared responsibilty.

B. Genuinely self-employed workers will be freed from IR35 compliance and the tax/nic resulting specifically from IR35.

From that date workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax/nic contributions. As was the case 5 years ago.