If you are taking up work as a contractor, you will for the most part need the use of a Limited Company. You can set up your own Private Limited Company – but this route isn’t for everyone.

The main alternative to setting up and running your own Private Limited Company, is to use an Umbrella Company.

If you are new to contracting, you might not have come across the concept of an Umbrella Company before. To de-mystify it, an Umbrella Company is simply a Limited Company which issues invoices on your behalf and manages your salary payments, including the deduction of the relevant payroll taxes (PAYE, PRSI and USC). The Umbrella Company handles the administration, tax and salary payments, leaving you free to focus on contracting itself.

Using an Umbrella Company is a flexible arrangement where you can avail of a Limited Company structure quickly and easily; and only for exactly as long as you need.

How does it work?

Each time you are due to be paid, the main steps in the process are:

The Umbrella Company issues an invoice on your behalf to the company you are working for;

The company you are working for sends your payment to the Umbrella Company;

The Umbrella Company calculates what taxes you must pay on these earnings and transfers payment of the after-tax amount (also known as “net pay”) to you along with a payslip. At Fenero we also provide contractors with our unique Money Tracker document with each payslip. This helps make it even easier to understand how deductions have been calculated – part of our belief in transparency and empowering clients to better understand their tax affairs;

If you have incurred tax deductible expenses relating to the work you are carrying out, you can give details of these to the Umbrella Company. Your tax relief entitlements will be included and granted through the payment calculations performed by the Umbrella Company.

Finishing a contract
When you are finished your contract, the Umbrella Company gives you a P45 which you can take with you to your next employment.

Why choose an Umbrella Company?

Using an Umbrella Company is typically a preferred solution for many first-time contractors or for those expecting to contract only for a short time period. It’s also a great solution if you simply just don’t want to have to worry about administrative responsibilities associated with operating your own Private Limited Company.

Why choose a Private Limited Company?

There are most definitely circumstances where it is highly beneficial for a contractor to set up their own Private Limited Company. It is important to know there is a little more involved with administration and you can’t just walk away from your own Private Limited Company as soon as you finish contracting. However the benefit is more control over longer term personal financial management avenues.

If you are unsure as to whether a Private Limited Company would be more beneficial to you than an Umbrella Company, contact Fenero and speak to one of our friendly Solutions Advisors. We are ready to chat and delighted to give you all the information and guidance you need to make an informed decision.

Contracting and freelancing are work trends on the continued rise in popularity – due to the many benefits offered from this way of working. Dealing with your taxes need not be a headache or a reason to rule out contracting and freelancing. Talk to Fenero to see how simple we can make the management of your tax affairs.