The Pros and Cons of PAYE Umbrella Companies and limited companies

Great guest post by Kevin Deasy the founder of Accounting Pro on the Pros and Cons of PAYE Umbrella Companies and limited companies

A PAYE Umbrella Company acts as an employer for contractors on a fixed-term contract, with their principal responsibility to arrange payment for the work carried out and to ensure all relevant employment taxes are deducted. The worker has a contract of employment with the Umbrella Company and is paid as an employee, receiving a payslip each time they are paid.

Using a PAYE Umbrella company is the main alternative to setting up your own limited company, the main difference being the way that you are paid. Through a PAYE Umbrella Company you are treated as an employee, but still enjoy the benefits of being able to move between contracts freely. A PAYE Umbrella is best for contractors on a shorter-term contract such as a year and is on a lower rate.

Advantages of a PAYE Umbrella company

• Maintain PRSI class A contributions
• Retain your PAYE credit
• Lower cost than Limited Company
• Guaranteed tax compliant
• Minimal administration burden
• More flexible than direct employment
• Tax incentive schemes are available
• Assistance with mortgage applications
• Covered under companies insurance
• Access to company incentives such as pension scheme/ cycle to work scheme

Disadvantages of a PAYE Umbrella company compared to Limited company

• Employers PRSI is deducted at source from earnings
• Restricted pension options
• Less Flexibility
• Better options to make business decisions

A personal limited company is a company owned by you. It is a separate legal entity giving you legal protection against any personal liability while contracting. Unlike an umbrella company, you fully own the company.

A personal limited company is most suited to long term contractors looking to establish a company in their own name. It can also benefit professionals with multiple incomes from related business interests outside of their normal daily rate contracting role.

Advantages of a Limited Company

• Paid a higher rate than an Employee
• Greater flexibility than an Umbrella Company
• Can utilise expenses to offset tax
• Great benefit to Company Pension
• Self Employed – you are your own boss
• Free to make your own business decisions

Disadvantages (against Limited Company option)

• No PAYE tax credit
• More responsibilities than an employee
• State welfare can be less accessible
• Must have own business insurances

Using either a PAYE Umbrella company or a Personal limited company solutions can be beneficial in more ways such as aiding in the set up of discounted healthcare, provide banking advice, giving advice on government schemes and can offer benefits such as one4all vouchers.

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