When starting a new business or working as a Contractor the Working Options available are:
• A sole trader or Partnership
• Open and work through your own Limited Liability Company (Ltd)
• Form and work through a Limited Liability Partnership (LLP)
• Work through an Umbrella Company
• Work as an employee direct to your client
Each of the options has its own advantages and disadvantages. The rules that relate to them are complex and frequently changed.
The sole trader option used to be generally less tax efficient but easier to manage than a Limited Company. You also have to pay all of the tax due for the year that the money is earned.
For Ltd’s and LLP’s the important words are Limited Liability which means that providing you follow the rules you can only ever lose the money that you have invested into the company. The administration burden and costs to run either of these are higher than being self-employed, but potentially they can save you money if run properly.
For many clients the Limited Company is probably the best way to go. It isn’t easy though and shouldn’t be done lightly.
The defining characteristic of being an employee either directly or through an Umbrella is higher tax and lower admin. Also your liability to fees usually ends when a contract ends. So if you only expect to work for a few weeks we would normally recommend this option.
The starting point for all of our clients is a conversation with your accountant, either face to face, by phone or by Skype. This conversation aims to help you to understand what works for you and for us to decide if we can add value in your situation. At the end of the conversation we will make our recommendation on how you should work and offer to set up and manage your structure, whichever works best for you.