At Shield Accountancy, we’re never shy about sharing the benefits of forming a limited company to boost your contracting or small business. Limited and umbrella company contracting are often subject to comparison, with a variety of arguments to be made for both. There are many advantages to going limited, from having greater opportunities in striking a tax efficient balance to presenting a more professional image.
On the other hand, using an umbrella company offers an easy way to get started as a contractor, with umbrella companies taking care of all your tax and National Insurance obligations. After gaining experience, many contractors choose to switch from umbrella to limited in order to gain better control of their business. As with your transition from permanent to contract employment, making the move from umbrella to limited as smooth as possible is important. Read on to discover our top tips to help you switch.
Decide whether it’s right for you
As we’ve mentioned, both limited and umbrella have their own advantages and disadvantages. It’s a good idea to weigh up the pros and cons with your own circumstances in mind. Contractor Calculator describes a novel way of making sure the decision is right for you:
“Your choice is similar to owning a car or using a hire car or taxis/bus service. With car ownership, you are fully responsible for the purchase, running costs and eventual sale of the car (just like your own limited company). It works well as a long term solution where you will need the car for a minimum of one year. Compare this with a holiday situation, where you would hire a car or use taxis – much better for a short term solution where you do not want or need the benefits of ownership and do not wish to be concerned with the running costs of the taxi/bus – you just want a simple solution to get you to your destination (just like an umbrella company would do for you).”
Time your switch right
If you’ve decided to make the switch from your current umbrella company to form your own limited company, timing is everything. Most contractors wait until the end of their current contract so as to ensure business structures aren’t altered and a quality client experience can continue to be delivered. You can switch mid-contract, but new contracts will need to be signed between you, your new limited company and your end client. This generally isn’t an issue, but the increased administration can cause an extra headache that busy contractors simply don’t need.
The timing of your switch may also be determined under terms set by your umbrella company. Check the contract that you signed with them initially to determine any penalties or notice periods that may be applicable.
Call on the professionals
We have experience helping contractors switch from umbrella to limited. Our company formation service is a vital part of our offering and has helped countless contractors realise the full benefits of setting up a limited company.
To discover more about how we can help you make the switch from umbrella to limited, contact our new business team on 01992 668599.