Why is Umbrella better than a Limited company

In our market, there are often two solutions available to contractors, Umbrella PAYE and Limited Company (PSC) and depending on your situation, skillset and experience can have a big impact on which solution you choose.

However, in this article, I will explain why the umbrella solution is the best option regardless of your situation, skill set and experience and how during 2021 this will become the standard for contractors. To explain this let me give you an overview of both solutions.

An umbrella company acts as your employers and manages all taxes, pension, and employment rights during the time you are contracting. The solution is a pay when you use solution and therefore if you’re not working there is no cost to you.

A limited company is when you set up your own registered business and through this charge your client for your work, products, or services. You are responsible for your own taxes, employment status and all regulations relevant to owning your own business.

Now we understand the solution let me explain the benefits of the umbrella company when working through an umbrella company you become an employee of that company. This means you are protected by the Employment Rights Act, Agency Workers Regulations you have access to all the rights you expect when working as an employee.

In addition to this, all of your taxes are deducted at source and you have the option to join a pension and plan for the future. You’re also covered by the companies Employers Liability insurance meaning if something happens, they have you covered.

Another bonus is working via an umbrella company gives you the flexibility to work when you want to while providing a continuous employment record.

So why is better than the Limited Company? Well, with a Limited company there is plenty of room for error which means you could be open for fines and penalties for incorrect accounting, false employment status, insurance claims the list goes on. Add in the fact that Limited Company working is a massive target for HMRC now with the new Private Sector IR35 Reform coming in April 2021

An while yes managing your own money/ taxes has its benefits, those benefits have been slowly disappearing over the years. No this is not saying running your own business is a bad thing, but if you are planning to use a limited company as a way to manages your income as a contractor it might be time to think again. HMRC’s goal is for every contracted worker to pay the same tax and let’s be honest they will make it happen one way or another.

Without being super salesy, Cool Company and a compliant digital umbrella company built around removing the admin hassle of working contract positions. If you have any questions get in touch to find out how we can make working contract assignments painless and simple.