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Should you go umbrella or limited?

Thursday 20th September 2018

One of the biggest decisions that a contractor will make during their career is whether to register as an umbrella contractor or establish their own limited company. This is one of the most frequent questions we are asked, therefore we have compiled a guide to highlight the most important factors in both options.

Should you go umbrella or limited

Umbrella contractor

When registering with an umbrella company, you will essentially become an ‘employee’ of that company, and therefore will gain all the benefits that go hand in hand with employment, including holiday pay, a workplace pension scheme and sick pay (SSP). Subject to SDC status, umbrella contractors may also be able to claim back legitimate business expenses such as travel, PPE and subsistence whilst carrying out a contract.

Furthermore, due to the fact that an umbrella company will ensure you remain compliant with HMRC regulations such as tax and NI, this means much less administrative time, leaving you free to focus on your core contracting work.

Limited company contractor (PSC)

When you reach a certain rate of pay, it will more often than not be much more tax efficient to operate under your own limited company, as well as having much more control of your own finances. With your new status as a company director, you will ultimately have much more responsibility relating to the day to day operations of a company, such as submitting financial accounts, invoicing clients, chasing for payment and much more.

However, there are specialist contractor accountants (such as Sterling) who can take care of the vast majority of these administrative requirements on your behalf. This subsequently allows you to focus on your core business.

For contractors thinking about establishing their own limited company, we would encourage you to carefully analyse the details of your contracts. Should your contracts fall under IR35 then the benefits of operating your own limited company could be drastically reduced. When considering establishing a limited company the Sterling team are here to help limited company contractors in assessing their contract to determine whether or not it falls outside of the scope of IR35.

Alternatively, for those wanting to contract without the added stress of administration, are looking to carry out short-term contracts, are carrying out contracts on a lower hourly rate, or simply want to try out working as a contractor before making a concrete decision, Sterling’s customer focused, compliant service is ideal.

If you are still unsure about which avenue would suit your contracting career the most, get in touch with the Sterling team today to discuss your options.

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