Moving from an Umbrella Company to a Limited Company

The process of moving from an umbrella company to a limited company is relatively straightforward.

It is worth noting that the best time to move is between contracts – after one has finished and before another is due to start. This is because moving mid contract could breach the contract and incur financial penalties. It also means you can notify your next client and the contract can be changed accordingly.

The umbrella company then needs to be notified of your intention to leave. Once you have done this, they will issue you with a P45 and pay you any outstanding salary.

You will need to set up a business bank account as your limited company is a separate entity to yourself. Therefore, any money going in or out of the business needs to be kept separate from your personal funds.

To set up a limited company you need to choose a name for your company and check that your chosen one isn’t already in use. Appoint a director (this can be you) and decide who the shareholders or guarantors are. You must have at least one shareholder or guarantor who can be a director. Identify any people who have significant control over your company which has to be someone with more than 25% of shares within your company. The final step is to prepare a memorandum of association and articles of association and register your company with Companies House.

Appointing a contractor accountant such as Churchill Knight & Associates Ltd (our sister company) can make the transition between umbrella to setting up your own limited company extremely seamless and straightforward. If you would like to find out more about our accountancy packages, please contact a member of our team on 01707 669023 or fill in the short form on this page.

There are many reasons why you may want to move from operating through an umbrella company to setting up your own limited company. Contractors often set up their own limited company due to the potential cost savings and a greater degree of control over company affairs.

The following information outlines the reasons to move to a limited company and how to do so.

Below are a few reasons why you may wish to set up your own limited company:

• You want to have control over your company’s affairs to enable you to expand your business in the future.
• An umbrella company was a short-term option as you were unsure if you would like contracting.
• Contracting for over 3 months and turning over more than £25,000 a year means it is more tax efficient to set up your own limited company.
• It is the most tax efficient way of contracting if you are not caught by IR35.

There are a number of benefits to becoming a director of your own limited company:

• You can expect to take home around 60-70% of your earnings through an umbrella company, but if you operate through your own limited company you are able to retain more due to the different payment options available to limited company contractors.
• You will have improved status with clients who view limited companies in a more positive light.
• Once your company is incorporated, the company’s name will be protected and cannot be used by another person as a name for their own business.
• There is limited liability as a limited company is a separate entity. The directors will not be responsible to cover the debt if the business suffers a financial loss.
• There is improved financial control as the director has sole responsibility for the business and its finances. The director is responsible for financial planning, paying taxes and paying their own salary.

Whilst operating through your own limited company has plenty of advantages, unfortunately, there are a few disadvantages to consider before you set up a company:

• More administration responsibilities than working through an umbrella company.
• Your abbreviated company accounts and records are in the public domain as Companies House can be accessed by anyone.
• An accountant who assists you with the ongoing administration will result in increased accountancy fees.

The process of moving from an umbrella company to a limited company is relatively straightforward.

It is worth noting that the best time to move is between contracts – after one has finished and before another is due to start. This is because moving mid contract could breach the contract and incur financial penalties. It also means you can notify your next client and the contract can be changed accordingly.

The umbrella company then needs to be notified of your intention to leave. Once you have done this, they will issue you with a P45 and pay you any outstanding salary.

You will need to set up a business bank account as your limited company is a separate entity to yourself. Therefore, any money going in or out of the business needs to be kept separate from your personal funds.

To set up a limited company you need to choose a name for your company and check that your chosen one isn’t already in use. Appoint a director (this can be you) and decide who the shareholders or guarantors are. You must have at least one shareholder or guarantor who can be a director. Identify any people who have significant control over your company which has to be someone with more than 25% of shares within your company. The final step is to prepare a memorandum of association and articles of association and register your company with Companies House.

Appointing a contractor accountant such as Churchill Knight & Associates Ltd (sister company) can make the transition between umbrella to setting up your own limited company extremely seamless and straightforward. If you would like to find out more about our accountancy packages, please contact a member of our team on 01707 669023 or fill in the short form on this page.

If you have any questions about moving from an umbrella company to setting up your own limited company, please give our friendly team a call on 01707 669023 or complete the short form below.