It’s quite common for Contractors to start their careers as umbrella company employees. The security of continuous employment, with all the associated rights and protections, can make the leap into contracting seem much less daunting. It also simplifies the process at a time when your to-do list is probably out of control.
However, once you’re established and you’re sure the contracting life is for you, it might be time to consider running your own limited company. There are many reasons why you might want to, including greater control over your career and finances and potentially higher earnings.
Ending your umbrella employment.
Your the umbrella company will have a contract to supply your services to the agency or end client, and they’ll need you to give them as much notice as this contract requires. You might want to switch at the start of a new contract, as this often makes things easier and cleaner for you, your agency and your end client.
Once you’ve settled on a notice period and an end date for your employment, ask your umbrella to explain their P45/exit process. This should include arrangements for ensuring you’ve been paid for all the hours you worked, and paying you any remaining holiday pay.
Once your employment is ended, your umbrella will send you a P45. This will show your earnings and tax paid for the tax year to date. Your accountant may need this information to prepare your self-assessment tax return at the end of the tax year.
Forming your limited company.
Company formation will need to be completed before you start work, because your agency/client will need to set up a contract with your company. If you’re starting a new contract, you should form your company before this contract is due to start but it’s often smoother to make sure your company is formed and ready before your umbrella employment ends.
Limited company formation is a straightforward process that can usually be completed online. Orange Genie Accountancy can manage the process for you and your company will usually be formed within 24 hours.
Your Orange Genie accountant will be able to offer advice on the best structure for your company and will begin talking to you about tax planning and how to maximise your rewards.
Once the process is complete.
Being a director of your own limited company is slightly more work than being an umbrella employee, but once you have formed the habit of good record keeping, your Orange Genie accountant can do most of the heavy lifting for you.
