Tier-1 visa holder.. Umbrella or limited company?

[acc]

I have a Tier-1 general visa and do not have any previous experience of contracting. I am still in my home country. I am hoping a UK contracting offer soon. The contract would be just 6 months. I am in a dilemma whether to go under an umbrella company or to form a limited one?

I have recently been contacted by an umbrella company to tell me the benefits of going under umbrella, one of which I understand is the ease and convenience compared to setting up and maintaining limited company. Plus, it seems that using expenses (accommodation, commutation, lunch, etc.) to reduce taxable income is possible with the umbrella option as well. Plus, the umbrella company claims they will charge just 60 pds/month, and no set-up/registration fee.

Can anyone comment on above? And can anyone tell me the benefits (monetory and otherwise) of limited company over umbrella?

I still have 3 weeks time to start the contract and since I am unwell at present, I would prefer to take few days rest and later move to UK. This also means that if I were to go for limited company option, then my limited company formation will be delayed (because as I understand it is not possible remotely, because I do not yet have UK address etc.). And this would also mean that the contract preparation and signing will be delayed.

On the other hand, the umbrella company is promising to get me registered with them even before I travel to UK, which would also mean that I would be able to finish the contract signing formality sooner and will thus have the peace of mind of having officially secured the contract job.

One more thing, in case you experts believe that limited company is much better option than umbrella route, then how does this sound: I start with the umbrella route and go with it for a month, and later form a limited company and switch to it and leave the umbrella? Any cons of doing so?

[AccountantMatthew]

Ultimately it's down to the individual as to what is best and there are pros and cons to both. However I would say that you should thoroughly research both options.

It can be easy get carried away with the tax benefits associated with being a limited company director but without really researching what running a limited company is all about - especially with regards to what the responsibilities of a director are and what you do as a director. If you can do this - and think a little wider than how much money you save - then you are half way there.

In brief, going the umbrella route will save you with administration and you can get on with your job. The limited company route is usually better for retaining more of your income but it comes with additional admin and responsibilities as detailed above. You can also claim expenses/allowances you would normally associate with umbrella companies but do be aware that it isn't always as easy as it seems in the adverts - the responsibility is yours and if you don't incur the expense, then you can't claim it against tax.

Good luck with whichever route you take.

[acc]

Thank you very much for your reply Matthew. You wrote that I can claim expenses/allowances I would normally associate with umbrella companies. I am under the same impression. So when same expenses can be used to lower taxable income in both umbrella & limited routes, then why (or how) is it that limited company route helps retain more income? That is that special feature about limited company route that I am missing, and wanting someone to explain. Sorry for being naive.

In more figurative terms:

Based on daily rates, the offered gross income is 4860 GBP a month. Assuming estimated claimable expenses of 1100 GBP a month, the Umbrella company claims that if I go with them, my take home will be 3480 a month (plus 110 GBP a month as Monies Accrued as holiday pay.. reimbursed later). Do you believe, take home would be more than this if I take limited company route (assuming the same claimable expenses of 1100)? (Claimable expenses are the same in both routes, right?)

Many thanks for your valuable advice.

[goldfish]

If you can find a company that offers both limited and umbrella they can do a side-by-side comparison for you (although you will need to check that the input data is valid, e.g. if there are expenses included that you would actually spend those amounts).

There are some calculators here and you can use to compare for yourself (click on "More Contractor Calculators"):
http://www.contractorcalculator.co.uk

I have used both umbrella and limited and I have a limited company now. Matthew is correct that limited requires more input/effort from you although I don't find it to be too time-consuming or difficult (it takes a couple of hours a month).