Limited v Umbrella for contractors

Contactors generally operate through two different models. The umbrella company and the Limited Company structure. The Umbrella Company in basic terms means you are an employee of a Company. Both of these give you Limited Liability. The risk is attached to the company and the company can only pay what it owns – all your personal assets and money are protected. The only case where you lose that protection is if you have acted fraudulently.

What is a Personal Limited Company?

Also known as a Private Limited Company, this is a separate legal entity (which gives you limited liability personally). Typically as a Professional Contractor you will be the 100% owner of a Private Limited company- only having 1 director (the contractor)

The company invoices the client you work for and the money is paid into the company bank account. The company owns this money. The company then uses this money to do things such as buy company vehicles, pay you a salary, make pension contributions on your behalf and reimburse you for business expenses you have incurred.

As a company director of a Private Limited Company, you have a responsibility to prepare and submit annual accounts to the Companies Registration Office, file tax returns and ensure the company remains solvent. Setting up a limited company only takes a couple of days, but the tax registrations from the Revenue Commissioners can often take about 6 weeks to get. You won’t be able to invoice your clients until you have a VAT number. You’ll also need to open a business bank account in the company name, so your clients can pay your company for the work you have done.
If you finish contracting and decide that you never want to work as a Contractor again, then you need to legally close down the Private Limited Company.

Umbrella Company

The term Umbrella Company describes a company which is already set-up and has a bank account and tax registrations. You just use the company when you need it. The Umbrella Company is managed and administered in full by a third party which means you have absolutely no paperwork to worry about.

If you decide you no longer wish to be a Professional Contractor, you simply resign from the Umbrella Company, there is no associated charge for this.

Is Professional Contracting for you?

I hope that I have explained how easy it is to get started as a Professional Contractor and give enough advice for you to choose between a limited company structure and an umbrella.

Finally there are a number of other factors you should consider before you embark on the journey and these are personal considerations. For example do you think you have the self-discipline to be your own boss? Do you like to work independently? You will no longer be an employee and protections that are offered to employees will no longer apply to you, is that something you are comfortable with? Is your skill set up to date and relevant enough to give you a stable income and repeat contracts? Is your industry open to Contracting in principal? If the answer to all these questions is yes then what are you waiting for? Life as a Professional Contractor is challenging but it is rewarding and many would say much more rewarding working for yourself than for somebody else.

Contact us at contact@peakaccountingsolutions.ie to get started.

Kind Regards

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