Moving from limited to umbrella

If you would like to keep the company in existence but on a dormant basis, you need to set a date and then complete all transactions on your account up to that date. After this date, you need to have closed down your company’s payroll and pay off any outstanding tax you owe. HMRC needs to be confident that you have stopped trading and do not plan to take on any new contracts, therefore it is important that no more transactions are made via the company. To remain dormant, you will need to submit annual accounts to HMRC as well as abbreviated accounts which show the assets and liabilities of the company.

You will need to advise Companies House who will commence their dissolution process. This process can take up to six months. You will also need to notify HMRC that the Corporation Tax and company payroll needs to be stopped. You must also deregister for VAT.

If you have more than £35,000 in retained profits within the company, do not intend to start another company doing the same kind of work within the next two years then you should consider using a Members Voluntary Liquidation Service (MVL).

The main advantage of liquidating your company via MVL is that you can withdraw all your assets from the company, subject to Capital Gains Tax instead of Income Tax – meaning you will pay around 10% tax on remaining profits.

If you are already using a contractor accountant, it is worth considering using their umbrella payroll service if they have one. This would be the easiest option for you as often there is no switching cost.

Signing up to an umbrella company such as Umbrella Company UK could not be easier. Simply give us a call on 01707 669023 and we can sign you up over the phone in minutes, or you can fill in our registration form online.

There are many reasons why you would wish to move from your own limited company to an umbrella company. Whatever the reason for switching you will need to consider the formal process of closing down your limited company, or keeping it on a dormant basis.

There are many reasons why contractors move from limited to umbrella companies, below is a list of the most common reasons:

Limited companies may offer more tax benefits than working through an umbrella but constantly having to keep up to date with all administration is time consuming. Keeping track of all the relevant paperwork, submitting documents to Companies House and HMRC on time, issuing invoices, chasing payments and doing yearly tax returns can detract away from the time some contractors want to be spending contracting. Joining an umbrella company will mean you no longer have to do any paperwork and will only have to submit one timesheet at the end of each week.

Your contracts may fall within IR35 and if this is the case it is no longer tax efficient to work through a limited company. If you only have a few contracts which fall inside IR35 it may be beneficial to keep your limited company open, but operate through an umbrella company for those contracts to remain compliant.

Umbrella companies are easy to join and leave, and often have no tie in period. This makes them an ideal option for short term contracts. The time spent running a company bank account, arranging necessary documents, creating invoices and liaising with HMRC and Companies House is not worth it for shorter periods.

Umbrella companies are also ideal for contractors who wish to keep the income and expenses of one contract ‘self-contained’ outside of their limited company or usual arrangement.

Many contractors choose to start contracting through umbrella companies before they close down their own limited companies because they are facing legal issues which are forcing them to close down their company. Therefore, they have to operate through an umbrella company as a safe way of working and making money whilst they sort out the issues affecting their limited company.

Whatever your reasons may be for switching from a limited company to an umbrella company, it is important that you consider the formal process of closing down the company. Or alternatively, you can arrange to keep your limited company on a dormant basis.

If you would like to keep the company in existence but on a dormant basis, you need to set a date and then complete all transactions on your account up to that date. After this date, you need to have closed down your company’s payroll and pay off any outstanding tax you owe. HMRC needs to be confident that you have stopped trading and do not plan to take on any new contracts, therefore it is important that no more transactions are made via the company. To remain dormant, you will need to submit annual accounts to HMRC as well as abbreviated accounts which show the assets and liabilities of the company.

You will need to advise Companies House who will commence their dissolution process. This process can take up to six months. You will also need to notify HMRC that the Corporation Tax and company payroll needs to be stopped. You must also deregister for VAT.

If you have more than £35,000 in retained profits within the company, do not intend to start another company doing the same kind of work within the next two years then you should consider using a Members Voluntary Liquidation Service (MVL).

The main advantage of liquidating your company via MVL is that you can withdraw all your assets from the company, subject to Capital Gains Tax instead of Income Tax – meaning you will pay around 10% tax on remaining profits.

If you are already using a contractor accountant, it is worth considering using their umbrella payroll service if they have one. This would be the easiest option for you as often there is no switching cost.

Signing up to an umbrella company such as Umbrella Company UK could not be easier. Simply give us a call on 01707 669023 and we can sign you up over the phone in minutes, or you can fill in our registration form online.

If you have any questions about joining an umbrella company, please give our friendly team a call on 01707 669023 or complete the short form below.