Umbrella vs Regular Self Employed

[webgeek]

Tried this in the accounts subforum and got zilch. Maybe someone who contributes on legal subforum could help me, please...

About to embark on a new role which puts me as a contractor for an American company.
Just wondering, given the way tax laws, director dividends and whatnot have changed, if I'd be any better off using an umbrella company as self-employed, or just straight self-employed?

What's the difference, financially, these days?

Thanks in advance for the help!

 

[Gordon - Commercial Finance]

Financially, if you fall under the new IR35 guidelines which I presume you will, then they are getting to be more or less the same. IR35 is basically trying to prevent people reducing their tax liability by pretending they're a company when really their situation is more like employment. Contracting has been a bit rife in that area in the past.
That said, I would ask how long you intend to contract for? If you're only going to be contracting for 6 months for example, then you should still be able to contract through a LTD and take home around 75% of what you earn. Doing it through an umbrella is less of a paperwork headache, but you can usually expect to carry off around 65%. Contracting for the long term, and even through a LTD company complying with all the IR35 rules, you'll probably manage to take home around 70%, however it remains to be seen how stringent HMRC are going to be in this regard once they get their head in the game.

 

[webgeek]

My hope is that this is a long-term arrangement.

My base calculation on HMRC website showed about 22% Monthly Tax & Class 2 & 4 NI as regular self employed, keeping 78%.

If no other option is going to improve on that, then it seems straight self-employed is the way to go.

 

[Gordon - Commercial Finance]

I would always say self employed is the best way - you will take home more pay. Most people elect for the umbrella route because they don't know what they're doing, or they don't want the hassle of the extra paperwork.

 

[AllUpHere]

My hope is that this is a long-term arrangement.

My base calculation on HMRC website showed about 22% Monthly Tax & Class 2 & 4 NI as regular self employed, keeping 78%.

If no other option is going to improve on that, then it seems straight self-employed is the way to go.

I'm far from being an expert in these matters, but just based on the fact that I'm simply self employed, and know what my tax bill usually is, I can't see how that calculation could be right.

Will this new contract be your only source of income?

 

[webgeek]

Yes, my predominant income - they're an international company, outside the EU.

I took the USD figure, converted to GBP then ran it through the HMRC calculator, which shows 21.6% Yearly Tax & Class 2 & 4 NI (or monthly, it works out the same %).

http://www.hmrc.gov.uk/tools/sa-ready-reckoner/calculator.htm

 

[AllUpHere]

Does it make a difference that they are international. I just worked my figures out from last year and I ended up keeping 63 %.

 

[Gordon - Commercial Finance]

Robb I'm not sure that link you've used is the best measure. It seems to be working out how much you would pay in regular personal income tax if you paid your company's full net profit out as a salary. That's not the most efficient way to do it.
Really you want to be thinking about your gross profit (monthly contract income), whatever allowable expenses and pension contributions you can deduct from that, minus corp tax charge. That will give you the company's net profit after tax. Out of that, you might want to just pay yourself a salary of say £11k a year, thus keeping you under the income tax threshold, and then pay a regular dividend on top of that to top up your personal income, thus taking advantage of the tax free allowance on dividends as well, which I think is £5k?

 

[webgeek]

No, only for IR35 type queries, I believe - it's much harder to make a case that you're avoiding employment directly.

You're in a much higher tax bracket due to your earnings being considerably more.

Work for less, you'll keep more

 

[webgeek]

I've done the limited company directors dividend approach and would like to avoid the LTD route unless a great financial reason for doing so.

That calculator is the
Budget for your Self Assessment tax bill if you're self-employed.

 

[AllUpHere]

You're in a much higher tax bracket due to your earnings being considerably more.

Work for less, you'll keep more

The only way I can get close to the figures you quoted is if you are severely under selling your skills. As one of very few members of this forum whose opinion I value, you are worth more.

 

[STDFR33]

If you work via your own limited company, you are not self employed.

If you work for a company through an umbrella company, you are not self employed.

 

[webgeek]

If you work via your own limited company, you are not self employed.

If you work for a company through an umbrella company, you are not self employed.

Right, that's why I'm asking if one puts more take home pay in my pocket than self-employed.

 

[webgeek]

The only way I can get close to the figures you quoted is if you are severely under selling your skills. As one of very few members of this forum whose opinion I value, you are worth more.

LOL. I don't live in London. I am talking about earning 30% to 40% more than at 90% of the Marketing Manager roles in Glasgow, where I'm based.

Try to get what you're making as MM in Glasgow, g'head.

 

[STDFR33]

Right, that's why I'm asking if one puts more take home pay in my pocket than self-employed.

Don't worry at all about self employment.

The company contracting you will not contract with you if you are self employed. Or should I say, I would be amazed if they did.

 

[AllUpHere]

LOL. I don't live in London. I am talking about earning 30% to 40% more than at 90% of the Marketing Manager roles in Glasgow, where I'm based.

Try to get what you're making as MM in Glasgow, g'head.

As long as I have a phone and an internet connection, I'd earn the same in Glasgow, London, sat in a shed in the countryside (my preferred location), or on a beach in the Maldives. Personally, I can't see how you wouldn't be in the same position.

Anyway, sorry, this isn't really relevant to your question is it.

 

[webgeek]

Don't worry at all about self employment.

The company contracting you will not contract with you if you are self employed. Or should I say, I would be amazed if they did.

A USA company offers to hire an independent contractor in the UK. They can either, form a LTD and bill as a company rather than a contractor, work as a contractor under an umbrella company, or work as self employed.

So, be amazed.

 

[webgeek]

@AllUpHere - because I'm working for one company as a remote manager, not starting an agency taking assorted clients here there and yonder.

 

[STDFR33]

A USA company offers to hire an independent contractor in the UK. They can either, form a LTD and bill as a company rather than a contractor, work as a contractor under an umbrella company, or work as self employed.

So, be amazed.

In that case, they've been badly advised.

Go 'self employed'. Do not register for self assessment. If HMRC come knocking, tell them you understood that you were an employee and the money you received was net of tax and national insurance deductions.
They will then go after the engager for the 'lost' tax.

Joking aside, you've not given any numbers so any of the three could come out better depending on the numbers involved.

You should engage an accountant who can advise you.

 

[webgeek]

@STDFR33 - thanks for the suggestion, but I'm gonna give that one a Matrix-style body swerve.

If I was looking to beat the tax man out of his share, I'd give an address in Brazil, using someone else's name, and accept payment in Bitcoin. None of those things are going to happen however.

21.6% Yearly Tax & Class 2 & 4 NI

No idea exactly what an umbrella runs at these days, but estimates show it higher, so taking home less.

I'm just going to go with regular self-employed, pay them the rate they want and call it a day, thanks all!

 

[GoingOnline]

In my experience umbrellas are mostly used because UK companies are not keen on engaging sole traders for a variety of reasons that have nothing to do with the skill of the sole trader.

Keep in mind that as a sole trader WFH you should also be able to claim back some business related expenses, like for partial use of your home (mortgage interest/rent) and that should reduce your tax liability further.

 

[Gordon - Commercial Finance]

@webgeek definitely just speak to an accountant rather than relying on info from here. Some people giving advice (^^^^) don't even know the difference between Sole Trader and Limited Company seemingly.