Is it easy to switch between a limited company and umbrella company?

The answer to this question depends on quite a few circumstances, but in theory – yes. It should be easy for contractors to switch between a limited company and umbrella company. With off-payroll in the private sector (IR35) changes coming into effect from April 2021, we expect several limited company contractors to require an umbrella company’s services in the future. Keep reading and find out why switching between a limited company and umbrella company shouldn’t be stressful.

Your accountant should be able to help you

Off-payroll in the private sector has been coming for quite some time now. Not only was it rumoured to come into effect after similar legislation rolled out into the public sector in 2017, but it was also delayed by 12 months due to the coronavirus. Therefore, contractor accountants have had plenty of time to assess how the legislation will impact their limited company clients and how they can support them.

Several contractor accountants are now offering umbrella payroll – which is useful for limited company contractors who’ll be impacted by off-payroll changes. Not only can they keep all their administration in-house and with the same provider, but it should also definitely work out as a cost-effective solution – assuming the contractor accountant wants to keep their clients long into the future.

Contractors with a limited company will probably be advised to keep it operational – even if they take on an assignment inside IR35. This is because closing a company and starting a new one can be time-consuming and pricey, and most contractor accountants offer a low-cost dormancy service. This makes it easy to return to the limited company at a later date.

Umbrella companies have no tie in period, and no joining or leaving fees

If your accountant doesn’t offer umbrella payroll, or you’d rather move to another umbrella company with a better reputation (check out our top 10 umbrella companies), joining and leaving them as you please shouldn’t be a problem at all.

All the best, compliant umbrella companies will not charge you to join or leave their service, and the umbrella company’s margin will only apply when they process your payroll.

Once you’ve registered with an umbrella company, you shouldn’t need to register with them again. However, you should make sure you keep them up to date with your circumstances.

In theory, it should be easy to take a 4-month assignment and use an umbrella, then return to your limited company for an 8-month assignment outside IR35, then return to the umbrella again for 8 weeks, then go back to the limited company for 3 months, and so on.

Everybody’s’ circumstances are different, but we would advise contractors with a limited company who take an assignment inside IR35 to keep their limited companies open and choose a compliant and reliable umbrella company – when required.

Conclusion

Yes – it should be easy to switch between a limited company and umbrella company. A lot depends on your accountant (if you have one) and the umbrella you’re looking to switch to. Just make sure you choose a compliant umbrella company and not a tax avoidance scheme – and you’ll have nothing to worry about.

Top 10 umbrella companies

If you are a limited company contractor, you may shortly require the services of a compliant umbrella company– even if it is just for the duration of one small assignment. To help out, we’ve collated a list of top 10 umbrella companies, and we recommend you check them out. They’re all accredited by the FCSA, ad switching between your limited company and their umbrella payroll should be straightforward (depending on your accountant).

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