When you decide to work for yourself, one of the most important decisions you’ll make is which business structure you’ll work under. For IT contractors, the most common is to operate as either a limited or umbrella company, various factors will help you make this decision, mainly whether your contract assignment falls inside or outside of IR35.
Details about IR35 can be found here: IR35 Explained
Limited company
Many contractors operate via their own limited companies. This operational structure has tax benefits as the NI contributions are not payable on dividends you draw from your company. Operating as a limited company does require some admin – you’ll be responsible for all your own accounts, obtaining company insurance, salary and taxes, as well as any filings and similar. This shouldn’t be a barrier though – you can hire an accountant that specialises in your industry to manage this for you. When you are setup as a limited company contractor, you can sub-contract your services on various assignments for different clients.
Umbrella company
This option is also extremely popular because it means less admin – this is taken care of by the umbrella company, of which you are an employee. So, you’ll receive a net salary each week/month but will be forgoing the tax benefits associated with limited companies.
This is a good option for those first moving into contracting, or those who are just giving it a go and may well move back to a perm role as an employee in the future.
Both have pros and cons, and the above information is just a guide, not advice – please seek professional assistance before making any decisions. You can learn more about them, as well as seek advice, by checking out the resources linked below.
