Reasons and practices of moving from an umbrella to a limited company

When you are contracting, you have two different payment structures i.e. Limited and Umbrella Company. We have already discussed the difference between the two. Now it’s time to discuss the reasons to move to a limited company.

Why Move?

Here are some potential reasons to move to a limited company from an Umbrella.

1-      You were possibly unsure about contracting when you started it so you choose the short-term solution i.e. Umbrella Company. Now you like being a contractor and want to continue in the long-term, then starting your own limited company would be a better solution.

2-      You are expanding your business and you want to make important decision, limited company will give you that control over company affairs.

3-      You may be facing problems with your umbrella company and you think taking control of things would solve these problems.

4-      When you are worried about the umbrella company fees , you can move to limited company. Think of it like moving from a rented car to an owned car. Now you will have responsibilities such as fueling, repairing etc but you will not be paying the rent.

Practicalities of moving

If you know about the procedure, moving from umbrella to a limited company should not cause any problems. The transition should be fairly simple.

Before you move, you should review your existing contracts, including client side and umbrella company contracts to make the transition even smoother.

If you have a co existing contract running through an umbrella, you should talk to your agency as well the umbrella firm. Without co-operation from both the parties, you will find it difficult to move an existing contract.

You should also check if the company has any tie in period. You will have to bear some extra costs if you leave early when such period exists.

When you want to leave an umbrella company, you do not have to worry about closing down or termination process. There is no dissolution procedure. You just have to quit the employment just like you would do with other regular employments. Just make sure that the umbrella company is balancing all the accounts before you leave the company, including any surplus holiday funds.