One of the main questions a contractor asks themselves when starting out is whether to join an umbrella company or to set up their own limited company.

Both options vary greatly in terms of benefits, however there’s also a big difference in the amount of responsibility you’ll have. If you’re new to the contracting world, it can be a daunting task to choose which option is best for you. That’s why we’ve produced this easy guide that highlights the key points between both options.

Umbrella company

The majority of people who kick-start their contracting career will begin by working through an umbrella company. This is because you don’t have any responsibilities when it comes to handling your Income Tax and National Insurance, making the process a smooth one.

Sapphire Accounting offers a compliant umbrella solution which provides our employees with a contract of employment. This means that all of our employees have access to all the rights and benefits that permanent employees are given. This includes holiday, maternity & paternity and sick pay. You’ll also have the ability to claim legitimate business expenses, assuming they’re incurred during an assignment. Claiming different costs and expenses is dependent on the type of assignment is being carried out and whether it’s subject to supervision, direction or control (SDC). As umbrella contractors are unaffected by the rules of IR35, there’s no reason to worry about breaking legislation.

Here are a few quick-fire points on what to expect when working through an umbrella company:

• Higher earning power in comparison to permanent employment
• All employment, legal, tax and contractual obligations taken care of for you
• Spend much less time and energy completing admin work compared to a company director
• Get paid fast, on time and accurately
• Full access to employment rights benefits, along with Professional Indemnity and Employers/Public Liability insurances

If you’d like to read more about umbrella companies, please click here

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Limited Company

Although limited company contractors tend to receive a higher income than contractors working through umbrella companies, running a limited company requires a little more elbow grease. As you’ll technically be self-employed, you’ll operate as an independent business and will be required to carry out all the necessary administration, such as:

• Invoicing your clients/agency
• Registering as a director of your limited company and informing Companies House of any significant changes to your company or accounts
• Creating a separate business bank account
• Communicating with HMRC, Companies House, accountants and other organisations.
• Making sure that all tax returns/documents are filed on time
• Invoicing, producing accurate accounts, VAT records and invoicing
• Submitting an annual self-assessment tax return
• Calculating tax due on dividends and paying any outstanding balance
• Completing and paying accurate Corporation Tax Returns
• Operating IR35 reviews regularly to make sure that you’re complying with tax law

This list may come across as a little daunting, however Sapphire Accounting can take most of the administration off your hands. We’ll be by your side providing useful advice when needs be and making sure you’re clued in with everything happening in your limited company. If you’d like to learn more about limited companies, either click here or get in touch with one of our expert advisors who’ll be glad to answer any questions you may have.

 Click here for more information on our limited company services.

Looking for more help?

Hopefully this guide has helped you to better understand the benefits umbrella or limited company. If you’re still unsure which route would be best for you or you’d simply like to know more, Sapphire Accounting is always at hand to give you the best advice. As one of the most experienced contractor accountants, we can provide you with the best solution to suit your circumstances. We’re dedicated to staying by your side right from the outset and we’ll always aim to work around your lifestyle. Our 24/7 online portal lets you submit expenses and timesheets whenever it’s suitable for you, while our expert support team is always on hand to answer your queries at any given time.

If you’ve decided to opt for the limited company route, you can rest assured that you’re in safe hands with Sapphire Accounting. We’re focused on making contractors’ lives as easy as possible so they can do what they do best.

To join us, or for more information, call 01625 539 997 or email