When transferring from being a permanent employee to a contractor, many people are unsure as to the best way to trade and are often faced with what can appear to be a daunting choice – use an Umbrella Company or limited company which they have set up and own for themselves.
There is a balance to consider when looking at the best options. Most people want to think about the best way to maximise their income, as well as the easiest option. In addition, its important to think about whether you’re likely to become a career contractor or if you’re looking at a short term option. Working with Green Lantern will ensure that we talk you through all of the important considerations, however, we’ve summarised some common issues below.
Many people think that running their own limited company is a difficult way of working. However, with the assistance of Green Lantern’s accountants, actually it’s no more difficult than trading in any other way. It’s widely known that setting up and running a limited company, where you become a director and shareholder can be the most tax efficient way of working. The advantages include claiming back a wide range of expenses, including the accountancy fees the business incurs. Importantly, this option means you have complete control over your financial affairs.
Some people however don’t like the idea of being a director and owning their own business; no matter whether an accountant is engaged, as the owner of the business, you are responsible for how its run, including the finances and statutory requirements. For these people, often an umbrella company is their preferred option.
Using an umbrella company means that you become a full employee under a PAYE payroll, and the umbrella company contracts with your clients and take full responsibility for invoicing, collection of funds and payments to both you (as their employee), and HMRC for PAYE and NI that is deducted before you receive your payment. You still have the ability to claim your business related expenses; however, the financial benefits are often not as efficient as a limited company. However, umbrella companies are often the easiest way of trading, and mean no long term commitment, unlike owning your own business.
Green Lantern always discusses all of a contractor’s circumstances prior to recommending a solution that is based for you as an individual. Our consultation will go through all of the important points with both methods of trading to ensure that you are using the service best for you. For more information, just contact us on 0207 164 2116.