Limited vs. Umbrella

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Many UK contractors are perplexed as to whether to become a limited company or to become part of an umbrella company. The reason why so many contractors want to become one or the other is due to the taxation laws in the UK. As a self-employed contractor and nothing more, there are very few expenses that a contractor can claim for but as either a limited company or part of an umbrella company, there are many expenses that they can claim for and thereby reduce their tax bills significantly. There are of course pros and cons to either choice and that is what often perplexes the contractor; which to choose so that they can gain the most. If a contractor decides to become a limited company, they will probably be able to make more claims than they would as part of an umbrella company but finances are not always the only thing to consider. If a contractor does decide to become a limited company, they will be faced with a lot more administrative work than they had whilst merely being self-employed and as most contractors dislike the paperwork side of their jobs, some financial losses would be preferable to extra paperwork. For those contractors that do not like paperwork, although being part of an umbrella company may not allow them to make quite so many claims, being a part of an umbrella company does have the advantage that the umbrella company not only takes care of any extra paperwork but also reduces the paperwork a contractor already had. Basically an umbrella company will register a contractor as being in their employ and by doing so enables the contractor to make claims for expenses but, as the umbrella is the employer, it is they that will deal with a contractor’s worker’s pay. It is also up to the umbrella company, as the employer, to create any invoices on behalf of the contractor and of course collect payments from those invoices. There I sa fee that the contractor will have to pay the umbrella company but that is a fee which would have been agreed on and the umbrella company takes their fee from the money received from invoices, the rest of which is deposited in the contractor’s bank account. This means that as far as these administration tasks are concerned, a contractor really only needs to provide the umbrella company with their bank account details and the weekly worksheets for their workers. A contractor that decides to become part of an umbrella company can easily find a suitable umbrella company by going to the website which will assist them in finding an umbrella company anywhere they may be in the UK. Although one of the advantages of being part of an umbrella company is that they are aware of all the tax and NI requirements which are needed, they are also beneficial to contractors that are listed as being offshore. And their popularity is rapidly growing with both Uk based and offshore contractors.

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