When you first start out in contracting, working under an umbrella company is an excellent stepping-stone into the world of self-employment. But at what point should you start considering switching to a limited company?

If you are new to contracting, using an umbrella company is ideal due to the minimal administration you need to manage. However, if you believe that your earnings could be taxed more efficiently, switching to limited could provide more freedom with your personal finances. It opens the opportunity to potentially increase pay retention depending on circumstances.


The basics you need

As a rule of thumb, if you want to set up a limited company you need to be earning more than £15 an hour, for it to makes sense to switch. Higher earnings are needed so you are capable of comfortably covering the costs associated with setting up and running your own limited company.

Additionally, if your contracts tend to be long-term or you are considering taking on more long-term contracts, then limited would be ideal for you. A limited company could help maximise your pay retention for long-term contracts (plus the time spent on admin and liaising with your accountant would be worth it since your take-home pay would likely be higher).


Pay retention

When contracting under an umbrella company, your salary is taxed, as an employee would be, so deductions are made including Income Tax, NICs, and the umbrella company’s margin. While, as the director of a limited company, your tax rates are dependent on your earnings, and your accountant can help you with this process to ensure your income is taxed efficiently.


You’re ready to run your own business

If you’ve always dreamed of being your own boss and running your own business, then becoming the director of a one-man limited company is an excellent way to start out. Setting up a limited company will help you familiarise yourself with all the duties and responsibilities expected of the owner and director of a company including staying updated on all necessary documentation and legislation involved in running a business.


Supervision, Direction and Control legislation 

Since the introduction of Supervision, Direction and Control legislation in 2016, claiming expenses through an umbrella company is difficult. Which is why being a limited company director may be more attractive to those who often need to claim expenses for business related items and activities for their projects.


If you’re ready to switch from an umbrella company to a limited company, contact us at K&B Accountancy Group. Our team of expert accountants are on hand to provide impartial, compliant and professional advice. K&B Accountancy Group can unlock your business potential, providing you with a first-class accountancy service that is tailored to your requirements. Call us now on 020 7719 0211 for a FREE consultation and we can help you choose the best path for you.





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