Pros & Cons of using an Umbrella Company

If you are thinking about using an Umbrella Company you need to weigh up the Pros & Cons versus going into business with you own Contractor Limited Company.

Are you a highly skilled contractor on a UK Work Visa? Do you need a Contractor Solution to deal with project billings? If so Commonwealth Contractors can help!

We work with Umbrella Companies who specialise in dealing with highly skilled expat contractors. To discuss your situation with a highly experienced advisor call Commonwealth Contractors now on 0800 294 4388 or Submit your Details and we will get right back to you!

Advantages of using an Umbrella Company

Minimal Administration

With an Umbrella Company all you have to do is; sign up, send timesheets and expenses and wait for payment. The Umbrella Company does everything for you so there is no need to worry about end of year PAYE returns, quarterly VAT returns, processing payroll etc

Claimable Business Expenses

You can normally claim a number of business expenses to reduce your taxable income and boost retention. Expenses may include;

  • Site Based Travel
  • Site Based Subsistence
  • Remote Site Hotel & B&B Costs
  • Professional Training (For your existing contract only).
  • Manuals & Textbooks
  • Business Telecoms
  • Postage & Stationary
  • Eye Tests – If required to use a computer

IR35 & MSC Compliance

Since all contract income is paid in the form of PAYE Salary (with the exception of reimbursed expenses ) there is no need to worry about;

  • An IR35 investigation
  • The Managed Service Company (MSC) Legislation

IR35 and the MSC Legislation only apply to cases where profit income is distributed.

No Additional Costs

With a Contractor Limited Company you have to cover costs even when you are not in contract (i.e. accountancy fees) and you may find there are a number of unexpected costs (e.g. Professional Indemnity, Employers Liability, Public Liability Insurance). With an Umbrella Company you simply pay a one off admin fee and everything is included.

Easier to qualify for a Loan or Mortgage

Dividend Income received through a Contractor Limited Company can make it more difficult to qualify for a Loan or Mortgage. Generally lenders like to see PAYE income to confirm beyond any doubt funds received. With an Umbrella Company all Income (with the exception of reimbursed expenses) is paid out as salary therefore it may be easier to qualify for a Loan or Mortgage.

Less Distractions

Since pretty much everything is taken care of by the Umbrella Company you can forget about admin and concentrate on your career instead!

Disadvantages of using an Umbrella Company

Greater Tax Paid

With an Umbrella Company you can only take income in the form of Reimbursed Business Expenses and PAYE Salary. On Salary Income you have to pay not only Income Tax and Employees National Insurance but also Employers National Insurance at 13.8% uncapped above the minimum threshold. However, if you are working on a Contract that is ‘Outside IR35’ and you use a Contractor Limited Company you can set a low salary and take the remainder of Income in the form of a Dividend. Since Dividend income does not attract Employers National Insurance at 13.8% you can potentially make a large tax saving.

No VAT Savings

You cannot reclaim Input VAT through an Umbrella Company however you can if you run your own Contractor Limited Company (and the company is VAT registered of course). If for example you buy a new laptop for business purposes and you spend £1,000 ex VAT in total you will be spending £1,200 (at the current 20% VAT rate). With an Umbrella Company you cannot reclaim the VAT on the expense however if you run a Contractor Limited Company you can.

Find out More

To find out more about Commonwealth Contractors call now on 0800 294 4388 or Submit your Details and we will get right back to you!

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