Umbrella Payroll or Limited Company

10 - 05 - 2021

You have been working through an umbrella company on various contracts and now wish to  start contracting through your own limited company, there are a few steps you will need to take to ensure any changeover you take goes smoothly.

Should you move from an Umbrella payroll to a Limited Company?

You’ve been considering switching to a company structure and this could be for a number of reasons, for example:

·         You started working on contracts and were advised to work and be paid through an Umbrella payroll company, which does represent a relatively hassle-free way of operating. However, you are unhappy with your current Umbrella company provider as using this model has impacted your take home earnings.

·         Now, however, you are considering switching to a limited company model for more personal control, typically more favorable tax rules, and more freedom.

·         You are able to obtain new contracts with clients’ who are happy for contractors to work through their own limited companies.

What would happen when you make a switch from Umbrella to a Ltd Company?

Logically the switching process isn’t that complicated. After you have given notice to your Umbrella company, your Umbrella company should reimburse you for any salary and expenses, (if any qualify), you are owed, they should also return any accrued holiday pay they have held back on your behalf.

Your Umbrella company should also issue you with your P45 after your termination date, as you will be required to set up your own company payroll once you have incorporated.

Timing your switch

There’s no need to wait until you’ve left the Umbrella scheme. You can concurrently set up your new limited company, and engage with a specialist accountant to assist you.

Check the terms and conditions for your current umbrella company service, as there may be penalties to pay or a notice period you have to provide before making the move.

From a tax point of view, leaving your umbrella is no more complicated than leaving your last employer when you were a (PAYE) permanent employee.

However, complications might arise if you decide to switch business structures mid-contract, and while the recruitment agent and/or end client agree, new contracts will need to be signed between you and your new limited company and your agency (or end client).This should not prove to be a problem, how smoothly the transition goes, mid-contract, would ultimately depend on all the people in the chain acting reasonably and promptly.

Multiple Contracts:

It is possible that you are able to work on several contracts at the same time, and these could be as a Limited Company, and you may also at the same time work, on a contract(s) as Self Employed. Accountants have packages that support and allow you to work through both models, keep you compliant and assist you in keeping your tax affairs in good order.
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Foremans LLP Umberlla
Foremans LLP