Umbrella Company or Limited Company?

The introduction of the IR35 legislation led many contractors to feel targeted and uncertain with whether they would be seen as a genuine business in the eyes of the Revenue. This fear of becoming a “tax avoider” and having to pay penalties led to the development of umbrella companies which although provide a less risky method of working also delivers a smaller take home pay.

The majority of contractors will find, if properly reviewing their status, that they are better off setting up and running a limited company, where you become a director and shareholder, is the most tax efficient way of working. Operating via a limited company has a number of other advantages as opposed to working under an umbrella company.

Although IR35 becomes a consideration, good business practice is all it takes for compliance:

  1. Have each contract reviewed by an IR35 professional (QAccounting provide a review service as standard through our compliance partners, Qdos Contractor)
  2. Review your working practices regularly during your contract, some contract reviews include assessments of your working practices
  3. Ensure your taxes are paid correctly and on time

Operating under an umbrella company shouldn’t be a long term solution. If you are still trading in such a manner, speak to one of our advisors who will help you review your status and whether this is the most tax efficient option for you.

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