Reply to: LTD and benefits?

[Wanderer]

if someone is just starting out, taking on a contract role might be challenging enough without the worry of being responsible for a ltd co.

Agree with that.

I know a lot of the more experienced people can be negative about umbrella companies but they definitely have their place as they offer a simple payroll solution which means that noobies don't have to bother with forming a company, VAT, bank accounts, HMRC, IR35, book keeping or sorting out accountancy cockups.

Umbrella expenses policies are pretty well defined and generally conservative enough to keep you well within the rules for allowable expenses so you won't get yourself into trouble there either.

Yes, you will pay more tax but if you are IR35 caught or you just want a quiet life (don't we all!) then they may be an option.

[socialworker]

I found umbrella very useful in that I was suddenly offered work and did not have time to consider all the pros and cons so umbrella was a safe option. For someone who has been paye all my working life, I was pretty nervous of going limited as I am one of those people who always think they will be caught if they do anything wrong. Years ago when bringing up my daughter at home I tried to do some music teaching at home, and dutifully told the taxman, at the end of the year they sent me an estimated tax bill which was wildly in excess of what I had actually earned. That really put the wind up me although it worked out ok eventually.

if someone is just starting out, taking on a contract role might be challenging enough without the worry of being responsible for a ltd co. I don't agree that umbrella companies are a rip off, ok there are more tax efficient ways of working but for the ease and peace of mind they aren't a bad deal if you have plenty of mileage/accommodation costs.

I did have time to work out that going with an umbrella co was only an advantage over working paye for an agency if I had lots of mileage, which I do for this (my first) gig under brolly. I reckoned I would be caught by IR35. However, if I get my next gig nearer home it will not be worthwhile but for safety I reckon I need to stay with the brolly for another gig to prove I had the intention of working at more than one place of work, as I have no wish to pay back all the tax I have avoided through claiming mileage to and from work.

[Andrew@Wisteria]

Rather than trawling through multiple opinions on this forum, suggest phoning a recommended accountant.

Generally we do not recommend umbrella companies, reasons which have already been spelt out by others.

Ideally you want an accountant / business advisor that is experienced, knowledgable & that you can build a good rapport with.

[LisaContractorUmbrella]

Not always the same, I am not aware of a brolly that will pay for a contractor's mobile phone bill as an example.



The 1% discount in the first year is temporary, but the regular scheme certainly is not, it is an ongoing saving for contractors.



No it doesn't - it can be paid as a dividend, it is likely to be very small but it does not have to be retained in the company.



I understand that, but why do some brollies charge more to process a payment if it is monthly rather than weekly. If a brolly can process a payment for say £25, why charge £100 if it is done monthly? The work is exactly the same?



Good, although why charge £27.50 to process a weekly payment and £95 to process one monthly? I cannot see that your costs are any greater because the payment is done once a month rather than once a week?

I agree that in some limited cases, an umbrella can be a viable option, but in most cases, trading through a limited company is more efficient.

Totally agree that a Ltd Co is more cost effective for many people but cost is not the only consideration when making a decision about whether to go Ltd or brolly.

[LisaContractorUmbrella]

There is also the peace of mind element. We have a number of threads floating about where peoples incompetence and lack of understanding have put them in so very serious situations. Somewhere they wouldn't be if they were with an Umbrella so it's not just financial considerations to think about when deciding.

Well put NLUK I know that some people on here think we are the spawn of the devil (yes, you BB) but umbrella companies can be a very useful stepping stone for people between permiedom and running a Ltd Co.

[Nixon Williams]

Expenses that can be claimed are the same - what an umbrella company contractor will not be able to do is to purchase assets for the company.

Not always the same, I am not aware of a brolly that will pay for a contractor's mobile phone bill as an example.

Flat rate scheme benefit is temporary

The 1% discount in the first year is temporary, but the regular scheme certainly is not, it is an ongoing saving for contractors.

5% allowance has to be retained within the company

No it doesn't - it can be paid as a dividend, it is likely to be very small but it does not have to be retained in the company.

The payment cycle is usually determined by the agency and not the contractor

I understand that, but why do some brollies charge more to process a payment if it is monthly rather than weekly. If a brolly can process a payment for say £25, why charge £100 if it is done monthly? The work is exactly the same?

Not all umbrella companies' monthly charge is multiples of their weekly charge

Good, although why charge £27.50 to process a weekly payment and £95 to process one monthly? I cannot see that your costs are any greater because the payment is done once a month rather than once a week?

I agree that in some limited cases, an umbrella can be a viable option, but in most cases, trading through a limited company is more efficient.

[Jeremiah@RHJAccountants]

Curious. How much do you think I would be taking home under LTD?

I Gross £1150 per week with deductions for PAYE tax (typically around £190), Employees NI (£83), Student Loan (£58), Employers NI (£112), Brolly margin (£27), holiday pay (£23).

I wouldn't have the last two/three so would be £50/£162 better off a week?

Why not speak to a few accountants and see if they can do a take home calculation of what you make through a LTD vs Umbrella?

I do this for my new clients and exisiting ones when ever they ask then at least you can see the figures and see what is best for you if having more take home pay is a big motivation

[Jeremiah@RHJAccountants]

You wouldn't have the umbrella co margin but you would have accountancy fees

Which are Tax deductable so for example if accountancy fees were £1,000 this would mean 20% off this £200 would come off your corporation tax bill.

[northernladuk]

There is also the peace of mind element. We have a number of threads floating about where peoples incompetence and lack of understanding have put them in so very serious situations. Somewhere they wouldn't be if they were with an Umbrella so it's not just financial considerations to think about when deciding.

[LisaContractorUmbrella]

Edit, didn't read!

You were too quick for me Stek Eer's still payable if inside IR35

[stek]

LTD and benefits?

You wouldn't have the umbrella co margin but you would have accountancy fees

Edit, didn't read!

[LisaContractorUmbrella]

Curious. How much do you think I would be taking home under LTD?

I Gross £1150 per week with deductions for PAYE tax (typically around £190), Employees NI (£83), Student Loan (£58), Employers NI (£112), Brolly margin (£27), holiday pay (£23).

I wouldn't have the last two/three so would be £50/£162 better off a week?

You wouldn't have the umbrella co margin but you would have accountancy fees

[trumpet]

WTF!?

Just say 'NO!' to brollies!

Curious. How much do you think I would be taking home under LTD?

I Gross £1150 per week with deductions for PAYE tax (typically around £190), Employees NI (£83), Student Loan (£58), Employers NI (£112), Brolly margin (£27), holiday pay (£23).

I wouldn't have the last two/three so would be £50/£162 better off a week?

[LisaContractorUmbrella]

That is not quite true!

Even if you are caught by IR35 you would be better off with a limited company, reasons being:

• Contractor can still claim the same expenses as with a brolly
• Available expenses are wider, eg mobile phone, laptop etc
• Flat Rate VAT saving - this can be a considerable saving
• 5% allowance not subject to PAYE/NIC
• Brolly fees can be quite high, some charge a percentage of income, rather than a fixed fee

Brolly's usually charge per week or per month, but do not seem to explain why the processing charge should be more if it is done monthly.

Cannot see why the cost would be more - the charge should be per payment, and if the contractor chooses a monthly cycle they should benefit from this.

Another factor is that the brolly will reclaim the VAT on the contractors mileage but I have yet to see this being passed onto the contractor!

Expenses that can be claimed are the same - what an umbrella company contractor will not be able to do is to purchase assets for the company.
Flat rate scheme benefit is temporary
5% allowance has to be retained within the company
The payment cycle is usually determined by the agency and not the contractor
Not all umbrella companies' monthly charge is multiples of their weekly charge

In all fairness, there are benefits to a Ltd Co and benefits to working with a brolly - it just really depends what comes highest on your list of priorities I suppose

[jamesbrown]

I don't think the people at the back quite caught that BB

If you are inside IR35 you will be no better off working through your own Ltd than you would be through a brolly

It depends how you cut it. Strictly speaking, from things like the VAT FRS and flexibility on expenses (no limits on one client etc.), there could be a worthwhile advantage of Ltd over brolly in a caught scenario. You need to spend a little more time on bookkeeping though and time is money, I suppose The bigger factor is probably going to be the long-term working model rather than the money on one contract. For example, if you plan to have other contracts outside of IR35 (simultaneously or later), a Ltd. has a clear advantage.