Personal Service Umbrella vs Limited Company

The table below shows a summary of the differences between running your own company, operating through FPS and PAYE through your recruitment agency:

	Own Limited Company (PSC)	Personal Service Umbrella Company	Agency PAYE
Rate of pay	Same as through Umbrella; higher than agency PAYE	Same as through PSC; higher than agency PAYE	Lower than both PSC and PAYE Umbrella
Expense Process	You keep all receipts and offset expenses at the end of the year	The Personal Service Umbrella company offsets your expenses on each payment to increase your take home pay	You are unable to offset expenses
Statutory Compliance	You are fully responsible	FPS take care of this for your PSU – you don’t need to take any action	Agency is responsible – you don’t need to take any action
Accounts and Annual Returns	You must do this on an annual basis, or pay for an accountant to do it on your behalf	As all tax and NI is deducted at source, there are no additional costs	As all tax and NI is deducted at source, there are no additional costs for Agency PAYE
Payroll Calculations	You are responsible for doing any payroll calculations, including tax and NI	You have no responsibility for payroll calculations as these are done for you	You have no responsibility for payroll calculations as these are done for you
Raising invoices	You would need to raise and send invoices to your agency/end client in order to receive funds	Invoices would be raised on your behalf	Invoices would be raised on your behalf.
Business Insurances	You would have to pay for full business insurances	Business insurances are provided to you free of charge	No business insurance is required
Chasing payments	You would need to ensure that invoices are paid and conduct any credit control	All payments would be chased and paid on your behalf	All payments would be chased and paid on your behalf

 

Your own Limited Company

If you have your own limited company (also known as a personal service company), you will be the director and shareholder of the company.

You will be fully responsible for:

• complying with all company and other statutory issues, including company law requirements to file accounts and returns to Companies House;
• the calculation and payment of VAT and corporation tax liabilities;
• Payroll calculations and returns and various other statutory requirements;
• company administration including raising all company invoices, running a simple spreadsheet or accounting system to record transactions and appoint an accountant to deal with accounts, taxation and payroll matters on your behalf;
• ensuring the necessary insurances are in place to trade and protect your clients.

The MSC Bill was enacted into the Finance Act on 19th July 2007. There is uncertainty over the exemptions available for ‘Accounting Services' that means service providers who currently claim to be exempt from the legislation may be caught out.

If you operate your own limited company and use the services of a provider to help with the running of the company who is found to be a provider of managed service companies, then the MSC legislation will apply to you. The bottom line is that you could face potentially crippling bills for back dated tax, penalties and interest.

Although there are financial advantages of working in this way, an umbrella company would probably be more beneficial.

Personal Service Umbrella company

A Personal Service Umbrella company with FPS offers many of the benefits available through a limited company - but without the burden of running it. FPS create a PSU company for each individual worker. This will will employ you and it will undertake the following:

• invoicing your agency/client for the hours you have worked
• collecting payments from your agency/client
• calculating the PAYE and National Insurance contribution and deducting and paying it to the UK authorities
• making a net payment into your personal bank account
• complying with all company and other statutory issues, including company law requirements to file accounts and returns to Companies House
• calculating and making payment of VAT and corporation tax liabilities
• running payroll calculations and making returns and various other statutory requirements
• providing business insurance to meet claims made by your clients against negligence or service deficiencies.

You may be able to offset business expenses against your gross earnings – please call our Client Services Team for more information

A PSU with FPS has been specifically designed to give you all of the benefits of being a contractor while being an employee. All of the hassle and worries associated with owning and running your own limited company is taken away with a Personal Service Umbrella company, which makes a PSU option a very viable alternative for time-starved contractors.

PAYE through your recruitment agency

Not all agencies run a payroll for temps that they place on assignment with their clients.

The Agencies Act forbids a UK agency to make a gross payment to an individual. So, if you are working through an agency that doesn't run a payroll for its temps the options are to either have your own limited company or work through an umbrella company.

If you are working through an agency that will pay you through their payroll then your income will be subject to full PAYE and NI contributions. You will be unable to offset eligible business expenses against your earnings even though you have to incur them to do your job. The more agencies you work with then the more payroll contacts you will have so you're never on the correct tax code.

What this means is that you end up paying more tax than you need to. And what about the paperwork? Although you will receive a payslip when you are paid it is unlikely that you will be able to access historical information regarding your payments when you need it.

Maximising your contracting

So let's weigh up all the pros and cons.

The feedback we get from our clients is that yes, it would be nice to pay as little tax as possible, but very few have the available time, or necessary skills, to run their own company compliantly.

They also don't like the thought of receiving a tax demand for unpaid tax through no fault of their own. They want a safe way to feel in control, are valued and have all the perks of working for a company but the flexibility of being a temp. Is it too much to ask for?

Well at FPS we listened and took on board the needs of our clients and can offer an affordable and reliable umbrella company service to suit their requirements.