Changing Your Contract Payment Formation to an Ir35 Umbrella Company

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The first involves subcontracting out your ir35 tax responsibilities and paperwork to an outside company, the second involves establishing your own limited company and handling all of this yourself.

Of course you may have already set up your payment arrangements through the limited company structure. Luckily it's easy to switch to an ir35 umbrella company which can handle your PAYE and NI contributions alongside your timesheets and accounting. There are also some compelling reasons to run an umbrella company arrangement alongside your existing limited company, depending on your situation.

If you're just sick of the responsibilities of running a limited company - the hassle of being the nominal director, handling all the paperwork, running the risk of late fees, constantly communicating with the accountants, HMRC officials and others - then you'll be eager to switch over all you’re contracting to an umbrella company arrangement.

To do this, all you have to do is close your limited company down. You'll need to advise the Companies House that they should begin their dissolution procedure and advise Her Majesty's Revenue and Collections service that the company payroll and corporate tax schemes need to be closed and de-registered for VAT. Once you've done this you've effectively dissolved your company - though remember that this process is likely to take months before it's finally over, and you could face penalties if you dissolve your company whilst still under contract.

However, you may want to keep your limited company in existence. Perhaps the majority of your work comes from contracts exempt from ir35 legislation, but there are reasons why specific contracts might be better handled through an umbrella company.

For example, if you want to keep a short-term contract 'self contained' from your limited company, then an umbrella company offers an easy way of doing so. This might be because you want to accept an overseas contract with offshore arrangements; in this case little prevents you from using a specialist offshore umbrella company. You might also have personal reasons for wanting to keep a new contract outside of the existing limited company.

These can differ depending on the individual but the most common reason is to add some flexibility to the profit sharing arrangements of the existing company. If your existing limited company is owned by more than one shareholder, but a new short term contract is entirely for the benefit of one contractor, then an umbrella company makes sense - it allows you to conduct your business outside of the existing arrangements without the legal complications of adding another limited company to the mix, and lets you come back to the existing company once the work is done.