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I am working for a company as a web dev consultant at the moment, and they asked me whether I want to get payed through the Umbrella company or through my Ltd. Which is better for me and why?

The @David Thornley made a good point in comments. Don't forget that we are talking about web developing here. I am not sure how is it in UK, but in the country I am from, you get taxed differently for the stuff you do.

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Wasn't the Umbrella Corporation the one that was responsible for all those zombies and stuff? – FrustratedWithFormsDesigner Jun 21 '11 at 21:17
You might have a better chance of an answer on (SE for startups). – Walter Jun 21 '11 at 21:18
Hi Guy, if you have a question or concern about whether this question is on-topic, please raise it on our meta-discussion site not in your question body. Also try to keep your questions to one specific problem: we're not a discussion board where each "topic" can cover multiple questions. – user8 Jun 21 '11 at 21:20
I've recently asked a similar question and it was closed because it was voted down as a "off-topic". I promise to contact you in case the same happens again. The two questions I've asked are directly related. The answer to the second question (which you have removed) would have answered my first question for me. – Gajus Jun 21 '11 at 21:21
The problem here is that that question could be asked about any field of business in which one might be a consultant, so I voted to close as "off topic". If you could demonstrate that this situation is specific to programming in some form, or that the answer would be different for programming as opposed to most other fields, that would make it on topic. – David Thornley Jun 21 '11 at 21:32
up vote 8 down vote accepted

With an umbrella company you become an employee of the umbrella company and are paid after deduction of PAYE (Income Tax) and National Insurance. There are some tax benefits in that you can be reimbursed tax free for some expenses such as travelling to and from your client, food and drink when at the end client/travelling and any accommodation costs.

A more tax efficient way is to run your own limited company as this allows you to pay yourself a small wage tax free and take the remainder as a dividend. In some instances it is also possible to utilise the tax allowances opf a partner or wife/husband. With this method it is important you are outside the scope of IR35 and are genuinely "self employed". It also depends how long you expect to be contracting for.

The reason clients and recruitment agencies require you to do one or the other and not just pay you direct is because they don;t want the responsibility of you being deemed as their employee and also if you were to avoid tax they could be held liable. SOme agencies will pay you after deducting full tax but this is usually the most inefficient way.

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Thank you for a very clear explanation. – Gajus Jun 22 '11 at 7:20

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