Limited company vs agency contract

[LadyWellian]

Sorry if this has been done before - I've been through a couple of pages and didn't see any relevant threads.

I've spent the last three years as agency staff because a recruitment freeze meant my 'employers' couldn't actually employ me. As far as I can see the only people who have benefited from the arrangement are the agency. I got less money (they nicked 10% for holiday pay) and my 'employer' had to pay the agency fees.

At the time I was offered the choice of going agency or using my own limited company. I chose the former because I had no experience of the latter and it sounded a bit scary.

Now I've just been canned by my 'employer' and have another potential job that is maternity cover, which is being dealt with as an agency post though they would also take me on using my own limited company.

Can anyone point me to any good resources (online or books - I've had a quick Google and Amazon search and am none the wiser) please?

You could use an umbrella company instead of setting your own ltd company.

You will need to pay out up front to setup or buy a ltd company and be meticulous with your paperwork for corporate tax, NI, PAYE, expenses etc. You will also need indemnity insurance etc. In the long run it is more tax efficient though.

With an umbrella you apply to use their service and become classed as their employee. You pay a monthly fee but they handle all tax, NI etc.

Thanks Seaweed. I wasn't aware of umbrella companies until the temporary recruitment woman said that if I used one it would have to be on the firm's preferred supplier list - is this another can of worms?

Umbrella company fees are poor value IMHO, running your own Ltd Co should cost you half as much (£50 instead of £100 a month).

You are unlikely to get any significant tax advantage though unless you can avoid the IR35 provisions. Find out how much they are willing to pay for either agency or Ltd Co so you can work out the difference.

The Professional Contractors Group is a good source of information.

Thanks MrA. I've looked at the IR35 rules now and frankly I can't see how anyone manages to use a limited company for an assignment like this - but anecdotally it seems quite common in the City.

I think there may be small gains for being ltd and within the rules of IR35. I am considering going ltd when I finish mat leave, but would definitely want to be IR35 compliant.

Have a look at Parasol (umbrella company) - they have a sister company of accountants that help people manage their ltd company. They will be able to provide you with illustrations for both scenarios.

I can't see how anyone manages to use a limited company for an assignment like this

... either they take good advice from an IR35 specialist, or they accept the costly IR35 tax treatment, or they hold their breath for six years waiting for HMRC to arrive with a bill for 20% of everything they have earned.