Umbrella Company or Limited Company Decision

Dear Experts

Does it matter to anyone else but me if I choose to Comparing an umbrella company service to managing your own limited company." href="http://www.contractorsupermarket.info/guides/g1_umbrella_company_alternatives/comparing_an_umbrella_company_service_to_managing_your_own_limited_company.html">run my own limited company or use an umbrella company? My recruitment agent and my colleagues say I would be crazy to use an umbrella company because I would be worse off (about £4200 over 18 months).

I know it's a lot of money but I really don't want even more things on my plate just now. Apart from a very demanding contract my wife is also expecting a baby. Quite honestly I just want to come home and forget work.

This question sounds a bit naive but it's my first contract and I just want to cross all the 't's' right now and not have any comeback six months down the line.

Also, can my recruitment agency 'suggest' what I do in terms of either option?

David J

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Hi David

This is one of the many delimmas that contractors like yourself will be faced with every day. Do you want the hassle and burden of running your own limited company for possibly a more financially rewarding outcome or if like most contractors that use an umbrella company prefer to have someone else do the hard work for you (but for perhaps what could attract a lesser return on your income), although certainly contribute to a much more stress free way of working?

For most contractors like you working long professional days I sympathise with your situation and agree that the last thing you want, is to do more paperwork at the end of the day, particularly with a new family on the way when quality time with loved ones becomes paramount.

If you have had your contract assessed for ir35 and it is likely to generate more income for you via the limited company route rather than go umbrella company, only you can answer whether it is worth the extra hassle and time to you in favour of the extra income.

Is that figure (circa £233.33 a month) a pre tax figure btw after taking into account any tax due on dividends and have you accounted for accountants costs and insurances that would need to be factored in when arriving at that figure?

I assume your limited company comparison with an umbrella company had the appropriate umbrella company fees taken into account? If this was the case then of course this margin can be further reduced by using an umbrella company like GoUmbrella that will not charge you a fee for the duration of the contract.

Taking average umbrella company costs, approx £125.00 per month away from the £233.33 you expect to achieve each month (resulting in a difference of £108.33 per month) further mitigates the loss making the umbrella company solution much more attractive, particularly if the original figures are still subject to additional taxes.

There are so many pros and cons when choosing an umbrella company vs limited company and for most contractors the decision will purely be down to personal preference at the end of the day. Although the application of ir35 will also play a big part and of course it helps to be in the higher earning tax bracket when considering limited company status over umbrella company.

I'm sure your recruitment agency can 'suggest' what route you go down, but I would stress that as its your tax status on the line that this is a decision that ultimately lies with you to make.
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Ky Smith (MD)
GoUmbrella