Should I Be An Umbrella Company Contractor Or Limited Company Contractor?

Umbrella Companies the pluses and minuses

Options

With the Agency Worker regulations coming into force on October 1st contractors are looking at their options now.They are also taking into account what the Government review into IR35 said.There is one major advantage that Limited Companies over Umbrella Companies and that is that it has been estimated that contractors who use Limited Companies pay 10,000 a year less tax.That is because they are able to claim all sorts of allowances and expenses against tax.

Of course, this is a mighty carrot for contractors to go the Limited Company route but it is probably the only one.Most of the other advantages are when contractors go the Umbrella Company route.

Advantages

These would be:-

1. Contractors can sleep much more easily in their beds at night as they dont have to worry about the knock on the door from the taxman for an IR35 investigation. This used to be a major worry when over a thousand a year of contractors were investigated. The investigations were long and painstaking and could tie contractors up for years. However, it has recently been announced by the Government in response to a question put forward by the Professional Contractors Group under the Freedom of Information Act that there were only 23 investigations last year which compares to 1.4m contractors in the UK.

2. All the payroll and accounting work is done for them. All they have to do is submit timesheets and any expenses usually up to a maximum of 5% of their contract rate. The can then concentrate on what they do best and that is contracting. The poor Limited Company contractor has the added burden of doing his own VAT, keeping all his receipts, preparing for his accounts and paying the Accountant a sum of up to 1,000 a year. He is also the one who gets the visit from the Vat man

3. The Government have already signalled that they like the idea of the Umbrella Company. Indeed their review of IR35 said that if IR35 was scrapped there was the possibility that contractors would leave them and go the Limited Company route. The Government didnt like that idea as they get much more tax from them and that was a major factor in keeping on IR35

In 1998 there were no contractors in Umbrella Companies.Now there are 200,000 contractors in them.It is now down to personal choice for contractors as to whether they want to take a chance to earn the extra money but with the extra administrative burden and the possible investigation - or whether they want to be safe and concentrate on their contracting careers.

by: nitinchauhan

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