I recently applied for a freelance job, and was asked whether I'd like to contract myself as a limited company or via an umbrella company.
I understand the differences in a very basic sense, and as this is a six month contract, I'm leaning towards umbrella for simplicity's sake. At the same time, I'm not sure I'm fully comfortable with someone taking my cash for doing a bit of paperwork.
On the other hand, I don't know everything involved in setting up a limited company, what additional costs and benefits there are to doing so. It might also be a nice opportunity to learn about the process.
Can anyone break it down in straightforward, non-jargon terms?
Whether it's worth it or not will depend entirely on A) how much extra work you'd need to do to deal with invoices and receipts and business expenses and so on, B) whether or not the umbrella corporation would even deal with all that for you anyway and C) how much the umbrella corp would take from you for doing that work.
If you have to deal with a load of receipts, invoices and expenses every day, you'll find you probably end up spending the best part of a weekend doing your accounts each month, so in that case you'll probably end up paying someone else to do it anyway. If all you're doing is basically registering your pay every month then I would say you're better off doing it yourself. It does really depend on how much the umbrella would take from you for doing the admin, really.
>>7731 Yes, a few tens of quid a year to file your accounts, if you're a trivially tiny company.
I run a couple of VAT registered ltds - it's not really onerous, just relentless. VAT every quarter, and companies house and taxman once a year. Also legal miniumm obligations - insurance, H&S stuff. Make a calendar, do stuff before the deaddlines, and be able to find your fucking government gateway passwords.
You could probably really half-arse the accounts, but I do mine reasonably properly. Never have enough profit to play any elaborate tax dodging games, though.
Most contractors will be well below the VAT threshold, so you'll only need to do a corporation tax return and a Companies House return. If you're already comfortable with Self Assessment, it's straightforward enough.
I should raise a note of caution however - HMRC are really very strict on contractors who are really employees. If you're the subject of an IR35 investigation, you can be stung quite badly.
>>7734 Seconding this bit about HMRC, they are not known for their sense of humour or their laid back approach to life. For the first year you might want to get your accounts dealt with by a professional who can set you up with proper spreadsheets etc. and advise you on potential hazards and gotchas.
Thanks, I read about this. I'm still not sure how the HMRC distinguish between being contracted for a full-time service and being employed, exactly. What puts you in one category or the other?
There's an assessment tool at the link below; the questions asked should give you some idea of what criteria HMRC will apply. The fundamental question is whether you're providing a service for a client or supplying labour. Are you expected to keep particular hours? Could you send someone else equally qualified in your place? If you bugger something up, would you be expected to fix it at your own cost?
Took the questionnaire and it seems IR35 doesn't apply to me, but there's always the chance HMRC would disagree with my answers.
Appreciate the advice on this one, both, I think I'll see how these six months go with an umbrella company. If I like the work and I get an extension or another contract, I'll register myself as a limited company.