Umbrella company or limited company?

The accounting choices facing contractors and freelancers can be daunting, but there are just two main methods that you should consider: either contracting via an umbrella company or running your own limited company.

Umbrella Company

With an umbrella service (such as that provided by Brooksons, SJD or Norla), you become an employee of an umbrella company. This method is very simple to operate – typically you submit your timesheets and expenses to the contractor umbrella company, which then deducts your tax and national insurance and pays you directly. However, the price paid for this convenience is that your salary is subject to full tax and national insurance deductions, therefore it offers very few advantages compared to permanent employment.

Limited Company

Many contractors and freelancers prefer to operate through their own limited company. By forming a limited company you’ll become a director of your own business and enjoy many benefits, including:

• The most tax efficient method of operating – use our calculator (on the right) to see how much you could save
• Full control of your own business and finances
• The ability to claim a wide range of expenses, including computers, software, mobile phones and accountancy fees
• Access to HMRC’s Flat Rate VAT scheme, making VAT record keeping simpler

A common belief is that contracting via a limited company can be difficult and time consuming, but using inniAccounts makes it simple and quick – requiring only a little more time than contacting via an umbrella company.

inniAccounts recommends the use of a limited company for tax efficient contracting and freelancing and, when you become a client, we can help you with every aspect of limited company formation and management. You’ll also benefit from full use of our leading online accounting software , which allows you to quickly and easily manage your contract or freelance business.

Next steps

• Find out about contracting using a limited company
• Fine out more about our accountancy service for limited companies
  
• Take a tour of inniAccounts