You’ve decided you want to become a contractor; now it’s time to choose the right business structure to work under. The two most popular (that you’ve probably already heard of) are an umbrella and limited company, but how do you know which one’s right for you? The team at Mango Pay has put together a quick and easy guide on each structure to help you make the right decision.
Setting up a limited company
If you choose to carry out your contracting work under your own limited company, you’ll be in charge of your accounts, salary payments and taxes. It means you’ll have complete control over client invoicing and how much you’re going to pay yourself. If however, you don’t fancy doing all of this yourself Mango Pay have friendly specialist expert accountants to support you with anything you don’t want to do.
If contracting through your own limited company is considered appropriate to your circumstances you can pay yourself through a combination of salary and dividend payments, and because the latter isn’t subject to National Insurance Contributions (NICs), you can make some tax savings in comparison to working under an umbrella.
Contracting through an umbrella
While not as tax efficient as a limited company, an umbrella company becomes your employer and takes away the hassle of managing your taxes and accounts.
This option typically suits shorter-term contractors or those who are just getting a feel for this style of working, as well as those wishing to avoid dealing with paperwork, chasing payments and client negotiations.
What’s the best option?
Now you know about how the two options work, you might have already decided on the best one for you. However, if you’re still on the fence then consider how you intend to work. For example, if you know you’ll be working with multiple clients from the get-go, a limited company makes more sense, especially if contracting is likely to be a long-term career option for you.
If you’re adamant you don’t want to take on any of the responsibility that comes with paying yourself and dealing with taxes, then umbrella is the best solution. Remember that you can start working under an umbrella while you’re still testing the waters, and switch to a limited solution at a later date if you feel you’ve outgrown it.
Take a look at Mango Pay’s Accountancy for Limited Company and Umbrella solutions to find out what we can do to help you get the most out of your contracting career. Alternatively, if you wish to weigh up the pros and cons then get in touch with a member of the Mango Pay team for some no-obligation advice on 03300 580 190 or email firstname.lastname@example.org.