Moving from a limited company to an umbrella company- Reasons and practicalities

This article will discuss reasons and the working arrangements you may have to make when moving from a limited company to an umbrella company. It also discusses different practical aspects of making this transition.

Reasons for Moving from a Limited Company to an Umbrella

Here are some reasons that can possibly force you towards a transition from limited company to Umbrella Company.

Hassle Factor

You may be fed up to

-          have the responsibility of being a director of your own company

-          keep the spreadsheet and accounting system on its track

-          communicate with HMRC and accountants

-          file documents in time to avoid penalties

Existing Legal, Accounting or Taxation Problems

You may face legal problems related to the company. You may also have some contractual and accounting problems apart from taxation issues. All these issues may push you to think of other solutions to replace limited company.

IR35 Issues

If all your contracts are within the scope of IR35, joining an umbrella company may prove to be more tax efficient.

Overseas Contracts

You may want to contract with some clients outside the UK. Umbrella company with special offshore arrangements will make this easy than dealing such contracts through a limited company.

Personal Issues

You may also have some personal issues forcing you keep your contracts outside the limited company. These reasons may include

1. Matrimonial issues
2. Agency contractual commitments
3. Differing profit sharing arrangements between contracts.

Practicalities

Whatever is your reason for this migration from limited to Umbrella Company, you will have to initiate proper process for closing down the company, known as dissolution of a company. You can also keep the company at dormant status.

Closing the Company down

When you take the option to dissolve the company, you will have to inform HMRC officially. HMRC will initiate dissolution procedure once it has received the official update from you. The entire procedure will take three to six months. You will also have to deregister your company for VAT and close down corporation tax and company payroll.

Keeping the Company Dormant

If you wish to keep the company but close it down for business, you will have to prepare dormant accounts. Once you have setup new trading accounts, you should not do any business once the date of new accounts commences. You do not need to issue any specific notification to Companies House. However, you will have to inform HMRC about your company’s new status.

Choosing an Umbrella Company

Once you pick your solution to close down the business at limited company, you will have to choose an umbrella company. You will then have to follow some easy steps to join an umbrella company.

You can ask your accountant about pros and cons of different options. You can also check out some recommendations from your contracting agency.