If you’re about to, or are thinking about, making the step from permanent contracted employment into the world of self-employment, then the decision to go with either your own limited company, or working under an umbrella company, is a very big one indeed. You should be fully armed with all of the facts before coming to a decision, but here’s a quick overview of one versus the other.
The argument all boils down to whether you’d prefer a slightly higher income and more paperwork to deal with, or more simplicity and a straightforward way of working.
Setting up a limited company is not the huge investment of time and effort that it may at first seem to be. There is paperwork to consider, but with the aid of a good accountant, things needn’t be overly complicated. This is the most tax efficient way of working, because of the expenses that you can claim, so you’ll have a slightly higher income, but you must of course be aware of the fees that accountants charge, and that you’ll need to find a good one.
You also need to think about processing payments and invoices, which you will be responsible for – you can end up being paid in a sporadic fashion, which may not suit everyone.
Going with an umbrella company can make the whole process a lot smoother. Essentially, an umbrella company acts as your employer. They process payroll for you, which includes sending out invoices and chasing any payment on your behalf, and then pay you via BACS or another system. This means that you don’t need to worry about paying or dealing with an accountant. For those that work longer contracts, it can be very similar to working a normal job.
Umbrella companies can be more expensive to use if you don’t shop around, so it’s always worth having a look at costs before you come to a decision. One final other point is that you can end your agreement with an umbrella company at any time if it’s not for you, which is quite a lot easier than closing a company.
Ultimately the choice is yours, and there is no definite answer to which option is best. There are even companies that offer a balance of both. It’s simply a case of your personal preferences, and in truth, the differences between your various options are relatively narrow, so it’s not the end of the world if you go wrong the first time.