There are many reasons that a contractor would consider making the leap to umbrella, including their contracts getting caught out by new reforms to IR35 which have now come into force.

If you are a limited company contractor that is now considering going umbrella, Umbrella Broker have put together this article on everything you need to know, to help you make the transition as smooth as possible.

Why switch from limited company to umbrella?

As we have mentioned, there are many reasons that a limited company contractor would make the move to umbrella company.

These can include:

  • The contractor will now get caught out by recent IR35 reforms
  • The contractor no longer wants to be a director of their own limited company
  •  The contractor is looking for an easier, hassle-free way of operating

There are many benefits to working through an umbrella company, these include:

  • Joining an umbrella company is quicker, simpler and cheaper than setting up and running a limited company.
  • The umbrella company takes the contractor on as their employee. This means that they pay the contractor a salary and process and deduct their tax and National Insurance through the PAYE system. This means no tricky tax calculations required of self-assessment for off-payroll workers.
  • Umbrella contractors qualify for statutory benefits including sick pay, paid holiday leave, a workplace pension and maternity/paternity leave.
  • Umbrella contractors are automatically exempt from IR35
  • Umbrella companies make contracting easy and hassle-free, taking on tasks such as admin and paperwork, invoicing the client, chasing late payments and processing expenses
  • The umbrella company covers the contractor with employer’s liability insurance at a minimum, meaning no need to fork out for this out of your own pocket

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How to close your limited company

If you have decided that umbrella is the way to go, the next step will be to make the switch.

To close your limited company permanently, you should engage the help of your accountant or financial adviser to find the best route for you.

Some options may include:

  • Closing your limited company through Members’ Voluntary Liquidation: this route liquidates your company, meaning it will be closed and dissolved. This is an option open only to solvent companies, meaning those that can pay their debts, cover their daily costs and usually have assets over £25,000. At the end of the process, the limited company will be closed and struck off the Companies House Register.
  • Closing your limited company through Creditors’ Voluntary Liquidation: this route also liquidates your company, but is only available to those that are insolvent, meaning they can’t pay their debts or cover their daily costs and have liabilities that outweigh their assets.
  • Let your limited company become dormant: if you don’t wish to close your limited company, you can instead let it become ‘dormant’ for tax as long as it no longer carries out business activities, trades or receives income.

How to choose the best umbrella company?

Once you’ve either closed or made your limited company dormant, the next step is to find the best umbrella company for you.

There are several things every contractor should look at to find the best umbrella company for their needs.

Service level

Firstly, contractors should look at what services the umbrella company offers. After all, every contractor is different and has a different set of requirements.

Whether you are looking for extra holiday or same day payments, it’s important to find an umbrella company that best suits your needs.

Fees

In exchange for their services, every umbrella company charges fees.

However, fees vary from company to company, so it’s important that contractors do their research to find a fair deal.

In general, contractors can expect to pay around and upwards of £15 per week in umbrella fees. However, if you require a range of additional services and perks from the umbrella company then you can expect to pay more in return.

It is also important to look at how the company charges their fees. These can be charged as either fixed fees which are a set amount, or percentage fees, which are worked out as a portion of the contractor’s pay. To avoid paying more in fees in the case that you begin to earn more, most contractors prefer to pay fixed fees.

Reputation

Most umbrella companies out there are trustworthy, but the sad fact is that some aren’t.

That’s why it’s always a good idea to do your research to find an umbrella company with a great reputation that you know you can trust.

Look out for any reviews of the company, information such as how long they have been operating, any testimonials from contractors they have worked with, their credit rating and any accreditations they have.

 Insurance

As we have already mentioned, as the contractor’s employee, umbrella companies are legally required to have employer’s liability insurance should the contractor fall ill or get injured at work.

However, it is also worth looking for what other types of insurance the umbrella company offers.

Many will also offer professional indemnity and public liability insurance which, although not legal requirements, are usually a requirement of the contract.

Find the best umbrella company with our handy contractor calculator

Having decided to make the move from limited company to umbrella, the next step is to find the best umbrella company for you.

That’s where Umbrella Broker come in handy.

Our umbrella company calculator helps contractors find an umbrella company that’s right for them in a matter of just minutes. Simply input a few key details and we will show a list of the best umbrella companies geared to your needs.

We take the hassle out of finding the perfect umbrella company. Ready to see how we can help you today?

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