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Umbrella Membership vs. Limited Company

Gain the understanding and insight for which company structure is right for you, because you deserve to get the best return on your effort while knowing your accounting and tax is sorted.

The BIG Question

You’ve done the hard part… You have won a contract for yourself and you’re on your way to a more prosperous future. The big question now is:

Trade as a
Limited Company

VS

Work through an
Umbrella Company

Your decision will have a huge impact on your personal tax bill so it is important to get it right.

Limited Company

Trading through your own limited company means your company will “own” your contract and will receive the income generated from the time you work. It is then your responsibility, as the director of your limited company, to pay yourself from the business. There are different ways to pay yourself out of your limited company to ensure you maximise your net income and minimise your tax liability. That’s where we come in, to help guide you in structuring your income and managing your company accounts and tax obligations.

Umbrella Company

An Umbrella Company is actually just a limited company that acts a a payroll facility for you. As a member of an umbrella company you become an employee of the umbrella company for the duration of your contract. During this time you will be paid as an employee with full tax and national insurance being deducted from your income before receiving your net salary. So, the umbrella company does all the accounting and tax stuff for you.

Limited Company

Umbrella Company

Pro’s

Con’s

Limited Company Pro’s

Umbrella Company Pro’s

Limited Company Con’s

Umbrella Company Con’s

Let Us Help You Make the Best Decision for You

We have gain substantial experience over the years through helping clients, just like you, make the choice about which structure is best for them.

Limited Company
Umbrella Company
Length of Contract The longer the duration of your contract the more beneficial a limited company would be.
Contract term of more than 3 months
Contract term of 3 months or less
Rate of Pay The higher your rate of pay the more beneficial a limited company would be.
Rate of pay greater than £15/hour
Rate of pay equal to or less than £15/hour
IR35 Status The status of your contract in terms of the current tax legislation which determines if it falls under the the off-payroll rules
If your contract does NOT fall under the current IR35 rules
If your contract DOES fall under the current IR35 rules
Sources of Income Flexibility to take on additional contracts with associated incomes streams
One or more income streams at the same time or at different times with the advantage of tax planning opportunities
Single income stream at a time.

These are all the key decision criteria to empower you to make an informed decision. But sometimes, depending on who you are, it comes down to personal preference. You need to be happy with the structure you choose. Our role is to guide you through the decision making process.

Real World Comparison of
Limited Company vs. Umbrella Company

To give you context on what the difference can be between these two structures, we have put together a real world example

Income
Annual Income
A contract with a great company
Your contract rate is £450 per day
£108 000
Expenses
Annual Expenses
Train Fare
Train fare getting to and from your contract site of £250 per month (£250 x 12m)
£3,000
Subsistence claim
Food & drinks of £5 per day to keep you nourished and energised (£5 x 5d x 48w)
£1,200
Mobile telephone
Mobile phone contract cost of £40 per month to keep you connected (£40 x 12m)
£480
Broadband & office costs
Monthly broadband and office costs of £75 to help you do your work (£75 x 12m)
£900
Company insurance costs
Mandatory company insurance of £40 per month to keep you protected (£40 x 12m)
£480
£6,060

Umbrella Company Membership

This is how things would play out with being a member of an umbrella company

Contract Income
£108 000
Net Take Home Income
£64 187
Less: Employers National Insurance
£12 050
Less: Employees National Insurance
£5 883
Less: PAYE Tax
£25 880

This £64 187 represents 59.43% of your contract value.

Limited Company

Things are a bit different for a Limited Company because you have more tax structuring opportunities. But, to make this a meaningful comparison, we will keep things as similar as possible.

Contract Income
£108 000
Less: Claimable Expenses
(£14 692)
Salary paid to yourself
(£8 632)
Company insurance
(£480)
Broadband & office
(£900)
Mobile telephone
(£480)
Train fares
(£3000)
Subsistence claims
(£1200)
.
Profits before Tax
£93 308
Company Tax (19%)
(£17 729)
Distributable Profit
£75 579

The £75,579 represents the amount that you could pay yourself as a dividend. Let’s presume that you paid all of this out to yourself, the total personal tax that you would pay on this would be £11,266. So your total take home pay would be made up as follows:

Tax Free Salary
£8 632
Total Take Home Pay
£78 525
Expenses Reimbursed (excl. Insurances & accounting fees)
£5 580
Dividends after Tax
£64 313

This £78 525 represents 72.70% of your contract value.

In Summary

So if you are weighing up your decision purely on tax efficiency, a Limited Company will give you a far better tax home.

Umbrella Company

£64,187
59.43% of contract value

VS

Limited Company

£78,525
72.70% of contract value

Need Advice

Get in touch with us, we will be happy to discuss your specific situation and advise you on the most appropriate structure for you.

Looking for an Umbrella Company

Our sister company, CRUMB, can offer you the perfect solution for your umbrella company needs.

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