The difference between an umbrella company and a limited company

Friday, 23 September 2011 08:54

The difference between an umbrella company and a limited company

The difference between an umbrella company and a limited company

If you are planning to embark on a freelance career but don't know how to go about being self-employed, the first thing to work out is whether you want to set up your own limited company or use an umbrella company to handle your payroll services.

If you've always dreamed of owning your own business then you might prefer to set up your own personal service company, which is a limited company where you typically own all the shares.

As well as there being potentially significant financial advantages to working as a limited company, agencies also generally prefer to deal with contractors who have limited companies, as it reduces their payroll costs, so you may find that working on this basis helps you to secure work more easily.

It is important to remember though that if you plan to set up your own limited or personal service company, although the financial benefits are normally greater you have to be prepared to do all the administration work.

This includes paying taxes, filing statutory documentation and keeping your books in order.
Some people however, find the prospect of setting up as a limited company a little daunting, in this case, joining an umbrella company might be the best option for them.

Should you be fortunate enough to receive lots of work as a freelancer or contractor, you could find that you don't have enough time to do the daily administrative tasks that come with running your own business. It can be very time-consuming chasing late payments and calculating your expense claims alone alongside your day to day role. The benefit of using an umbrella company is that they will handle all the accountancy issues, including paying tax and completing tax returns, signing up to National Insurance contributions and filling out expenses forms on your behalf. So, by using an umbrella company, you can rest assured that these administrative tasks are being cared for, allowing you to concentrate on fulfilling your services and getting more work.

An umbrella company will also handle financial communication with your end client so you don't have to worry about sending invoices or chasing payment of your hard earned money.

This reduces the amount of stress involved in working as a contractor and could be very appealing to those who are new to the field.
 

 

 

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