SMCC Umbrella Companies v Ltd Company
Contractors, consultants and freelancers who don’t want to get bogged down in paperwork, tax legislation, or are contracting for a period of less than 3 months are more than likely to fall outside the IR35 legislation and choose to contract via an umbrella company. There are pros and cons to either working with an Umbrella company rather than setting up your own limited company. The barrier to most consultants, contractors and freelancers is the cost of setting up and running your own Limited Company.
| Advantages of having a Limited Company | Advantages of using an HMRC compliant Umbrella Company |
| ·Limited company contractors typically take a small salary which minimises PAYE and NIC liabilities and withdraw the remainder of their income as dividends.
· Could benefit from joining the flat rate VAT scheme using the 5% expenses allowance. · Provides a ‘professional’ image of your business. · As a Company Director your personal liability is limited unless you are asked to personally guarantee a bank loan to the company. · As a Company Director, you are in complete control of all company affairs, both financial and administrative. · You can create different share classes, which can be useful for tax-planning purposes. · Company Directors control the way they remunerate themselves and can choose the optimum split between salary and dividends · Your Limited Company can be sold easily and potentially benefit from the Entrepreneurs’ Relief scheme, paying 10% in CGT on share sale proceeds if you have owned the shares for a year or more.
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· You become an employee of the umbrella company and submit timesheets and expenses to the umbrella company who will in turn invoice the end client.
· You are paid by the umbrella company as their PAYE employee – less their fee, tax and NI so you do not require an accountant. · They offer the perfect solution for those who are unsure about contracting or are simply contracting as an ‘in between’ job as there is minimum input required. · Less administration and costs associated with running a company, such as company filing fees, accountancy costs, stationery, and one-off legal and administration costs. · Offer a peace of mind and advice as part of their service (which is paid for as in your fees) · Preferred option for short term contracts · No upfront fees or annual fees t budget for. · Offer weekly or monthly payment options where available · Will help you identify your IR35 status |
Please be aware that some accountancy firms estimate that between 80% to 95% of take-home pay for consultants is not tax-compliant! There certainly does not appear to enough to warn consultant and contractor taxpayers of the dangers of ‘rogue’ umbrella companies. The general feeling is that the current guidance from the HMRC doesn’t go far enough or is clear enough with regard to Umbrella companies and most contractors, freelancers and consultants who see their Umbrella Company would never expect a high tax bill or refund at a later a date or know how to challenge a decision. However, HMRC is more than happy to retrospectively tax and fine anyone caught using a scheme as the contractor, consultant or freelancer without a Limited company is responsible for their tax affairs. Ignorance is not a defence, but taxation is a complicated business built on a shifting sandbank of rules and regulations.
Scott Merrick Contractor Consulting (SMCC) ensure you don’t become an accidental tax avoidance target for HMRC or fall foul of IR35 legislation changes which come into effect in 2019. We help identify IR35 status and advise employers and consultants of the best route to take tom minimise risk and liability.
As an experienced specialist contractor consultancy, SMCC take care of the crucial gap in expertise and knowledge relating to the legal requirements of recruiting and paying contractors, managing all aspects of the process between contractor and client to protect both parties through screening, running checks, payments, invoicing & drafting contracts, to ensure that all legal obligations are met.
SMCC sit down with our clients and listen to their needs before offering tailored contract and payment solutions. We want the best for our clients and our business has grown as we manage any concerns out of utilising skilled contractors. We work with in-house HR, Risk & Compliance teams to achieve minimum disruption, streamline payments and invoicing to retain key contractors.
SMCC Umbrella Companies v Ltd Company
Although there are few concrete details showing how the IR35 reform will impact the private sector, lessons from public sector IR35 reform could help your business stay one step ahead and give you time to adapt you on boarding and payroll strategy. If you are in any doubt about your next steps please contact SMCC by calling 01277 211151, contact us via our contact enquiry form or by email info@smcc.uk.com
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