PAYE umbrella or limited company?
To enable you to decide which is right for you as a contractor, you need to know the pros and cons of both working through a PAYE umbrella company like Parasol or going down the limited company route, which our sister company Quay Accounting will be more than happy to help you with. Here are the facts, take a good look through, then please feel free to use our PAYE tax calculator to work out what you could earn as a Parasol employee or contact us if you have any further questions.
Umbrella company
Whether you’ve been contracting for years or are simply testing the water before you decide to take the plunge, an umbrella company like Parasol is a great option if you simply can’t face all the hassle, admin, tax issues, stress and responsibility of running your own company. And who can blame you?
As an umbrella company, Parasol allows contractors to benefit from being legally tax efficient, without having to worry about the dreaded IR35 contractor’s tax. This is because when you join Parasol, you’re classed as employed by us so IR35 rules just don’t apply to you.
As a Parasol employee, you really get looked after. We do all your invoicing, chasing and collection of payment from your agency or end client, plus calculate your tax and NI contributions at source. And because we also offset legitimate business expenses against your taxable income, you can be sure your take home pay is as tax efficient and attractive as possible.
Joining a contractor management company such as Parasol gives you time to enjoy your hard earned cash, without having to worry about time-consuming paperwork and whether you’re working according to the rules laid down by HMRC for employed workers.
Here’s the full benefits in a nutshell:
- You can sleep at night knowing that all your legal, contractual and tax obligations are being taken care of by us – the experts!
- We’ll advise you on what expenses you can legitimately claim and offset against your taxable pay, meaning you will typically take home a higher percentage of what you earn compared to being in permanent employment.
- You spend far less time and effort on admin compared to being a company director.
- You know your weekly or monthly pay is taken care of and that you’ll get paid quickly, accurately and on time.
- You get a complete employment rights package and are covered by Professional Indemnity and Employers/Public Liability insurances.
- Benefit from the back up of an expert HR team who will handle any employment disputes or breaches of contract on your behalf.
Limited Company
Okay, we may be a little biased, but when you consider the simplicity and all the tax efficiencies of working with a PAYE umbrella company like Parasol, managing your own limited company sounds a whole lot more like hard work! But, it has to be said, administering a limited company could be the right choice if you have complex financial affairs, multiple income streams or because you’ve had specific advice from an accountant that it’s the right thing to do. On the plus side, incorporating and running your own company may result in higher net returns after taxes. But, it also means that you have a whole new set of responsibilities so you’re not always free to get on with the bit you’re good at and enjoy – working.
Here’s what running a limited company would mean for you:
- You’ll be a director of your own company and need to keep Companies House informed of your tax and legal status.
- You’ll need a good and reliable accountant (our sister company ClearSky Accounting comes highly recommended!)
- You’ll have to spend time producing detailed accounts, invoicing and VAT records.
- You’ll be responsible for submitting and paying accurate corporation tax returns.
- You’ll have to conduct regular IR35 reviews to ensure you’re on the right side of tax law.
- You’ll be required to respond to communications from accountants, HMRC, Companies House and numerous other organisations.
- You’ll be responsible for invoicing your agent or end-client.
- You’ll have to open a separate company bank account.
- You’ll have to make sure that all documents/returns are filed in good time to avoid late filing penalties.
- You’ll be required to complete an annual tax self assessment form to declare any dividends received to the HMRC.
- You’ll then pay any extra tax liabilties due on these dividends each year and estimated amounts throughout the following year.
If you decide the limited company route is the way to go, Parasol’s sister company, ClearSky Accounting, can give you clear, concise and expert advice on setting up. And being part of the Parasol family, you can be sure you’ll get top-notch personal service, including a guaranteed single point of contact for all your tax, accounting and financial requirements, for a low fixed fee of just £95 per month.
Our colleagues at ClearSky have over 12 years experience of working with over 2,000 contractors and small companies, so you can be sure that you’ll get all the expertise you need for your limited company accounting.
