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Not sure, Umbrella or Ltd?

Hi All, been offered my first contract and don't know whether to use an Umbrella Company or start a Limited Company. My agent suggested that I use a company who does something with off shore tax havens or something but I didn't understand it. He told me it was risk free and I would get 84.5% of my rate back with no tax or something.

I'm sure someone on this forum must have heard of all this stuff before and would appreciate some advice.


CUK Contractors Respond:
Yes, do not believe this agent. It is not risk-free. Read up on the threads here (especially those in Accounting/Legal) and if you want to go umbrella speak to one of the companies that post on here.


CUK Contractors Respond:
Unless you want years of stress when HMRC finally catch up with you, I would steer well clear of any such "80+%" promises. Feel free to name the agent too, good for the rest of us to know about the shenanigans that some of the more unscrupulous ones are up to...for all you know, the agent might be getting commission for recommending you to the offshore umbrella co.


Contractor:
Thanks man. I thought it sounded a bit unlikely. I told the agent that I didn't live on the Isle Of Man but he tried to tell me it didn't matter.

It all just strikes me as being so difficult. The contract is for great money (£180 a day !!!!) but I really don't want to have to do all this difficult stuff. Is there not a service that I can pay for or something that will do it all for me ? I just want to go to work, come home and spend my money. Really don't want all the aggro of Umbrellas and ltds or moving to the Isle of Man or whatever.


ContractorUmbrella Respond:
If you are living in the UK, working in the UK and are tax resident in the UK then you must pay UK taxes - any sort of alternative is not going to be risk free, far from it


CUK Contractors Respond:
I would recommend using an Umbrella for your first contract - most will let you switch midway once you've got your own Limited Company setup - you never know, contracting may not be for you and this way is easier for the first contract.


CUK Contractors Respond:
This is purely subjective. Running a Ltd is arguably no more difficult, particularly if you have a decent accountant behind you. It depends on your situation, of course, how long you think you will be contracting, etc, but you cannot apply one or the other as a hard and fast rule that is relevant in all cases.


Contractor:
Thanks for all the advice. I'd written something else but it isn't showing up. maybe i did something wrong. Am not very good with computers.

I've phoned an accountant and asked him lots of terribly stupid questions and I'm going to go with a limited company I think. The accountant said he'd pretty much take all my worries away for £170 a month, which sounds great.


CUK Contractors Respond:
That is COSTLY. I'd want more than my worries taken away for this, I'd want tea and toast in bed each morning too. Plenty of contractor-specialist accountants post on here, and charge nowhere near that much.


CUK Contractors Respond:
£170 a month is a lot to be fair. Everybody is different, I went from permie to first contract over a weekend so had to go with an Umbrella, stayed with them for the first 6 month contract but got a Limited Company setup at the same time. Second contract moved to Limited company.

Kept my head down and carried on invoicing ever since.
 


Contractor:
I've made another couple of calls now and it looks like I can get this a bit cheaper.


CUK Contractors Respond:
Let me get this right. Your rate is 180 a day? You may as well go Umbrella. I think the hassle / benefit of LTD wont be worth it (just my opinion, I've never run the numbers for a 180 a day rate)

Buy yourself a book called "salary vs dividends" from the tax cafe. It will educate you on the different scenarios. Any accountant worth their salt would have already steered you in the right direction without charging you - unless they are taking you for a sucker. Even if that means they are passing on a client


CUK Contractors Respond:
Just ran your numbers quickly.
Difference between LTD - small salary + dividends
and
total PAYE - i.e. Umbrella
is about £500 a month.


ContractorUmbrella Respond:
Before working out figures work out if you will be outside IR35 - no point comparing brolly PAYE with Ltd divs if you will be inside - like comparing apples with pears


CUK Contractors Respond:
To be perfectly honest, if you have to ask "Umbrella or LTD" then the answer is probably that they should go Umbrella. Umbrella is the simplest way to trade and you can sleep easy knowing your tax is all paid and you don't have to worry about all the admin overhead and legal responsibilities of running a company.

If at some time in the future you have done enough research to understand all the ins and outs of running a company and you are confident about your status as being in business of your own account rather than working as an employee, then it may be time to consider switching to a LTD company...

Avoid these offshore "schemes" like the plague though...