Ok, say you’re now ready to step into (or return to) the competitive yet potentially lucrative waters of IT consultancy, but are looking to finalise a few pretty crucial details before you commit yourself 100%. Here at Phoenix, one of the most frequently asked questions we come across from our IT contractor clients, or indeed all freelancers for that matter, is “what exactly are their billing choices”? In essence, it basically comes down to two choices: An Umbrella Company, or a Limited Company. Obviously when you set up your business, you need to have your taxes and accounts in order, yet unfortunately that is where a lot of contractors tend to struggle, and for good reason too. You need the best possible business structure in place for you to operate under, which again, from a billing perspective, comes down to either an Umbrella Company, or a Limited Company. Here’s a more detailed look at both of the above, plus our personal recommendation before we wrap things up.

 

Pounds

What is an Umbrella Company? – An Umbrella Company is basically where the contractors themselves, actually join the company and are then considered employees working for that very scheme. Contractors will submit timesheets to the company, who in turn will then send an invoice to the agency, or end client, invoicing for the work that the contractor carried out. You then receive your payment, minus the fees for the Umbrella Company. Tax, National Insurance, and certain expenses will also be deducted from your final payslip. If you work for an Umbrella company, your final take home percentage will be around 65%, possibly even 60% depending on expenses claimed. Note that new legislation may remove the ability to claim many of these expenses.

 

What is a Limited Company? – Limited Companies are becoming more and more popular in the UK for very good reason. By starting a Limited Company, you become a company director, meaning you will be responsible for submitting accounts annually, to what is known as Companies House, to ensure that your business meets its Tax deadlines enforced by HMRC. You, the director, will be responsible for invoicing, banking, working out how much to pay yourself, and various other responsibilities. The good news however, is that although it does sound like a lot of responsibility, most of them can actually be taken care of by specialist accountants, such as ourselves here at Phoenix. Some of the perks associated with Limited Companies include being able to claim expenses including: business mobile phone contracts, software and hardware (computers, internet etc), training, accountancy fees, business costs in general, travel, a home office and various other business expenses. Best of all, by working through your very own Limited Company, you yourself will take home between around 75 and 80% on each contract.

 

Who do we recommend? – Not surprisingly, we strongly recommend forming a Limited Company as opposed to working FOR an Umbrella Company. The main reasons for this include:

 

  • You take home more of your final salary
  • It is incredibly tax efficient
  • Many expense perks
  • Flat rate VAT scheme
  • You remain in control of your finances and contracts
  • Your accountant (that’s us!) takes care of all of the hard stuff

 

Now that you know the Limited Company option is the way to go, why not get in touch with us to see how easy it is to set up your Limited Company (we take care of it) and manage your contract through it (we do that too!).

 

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