Limited Company vs Basic or Personal Service Umbrella (PSU) vs Agency PAYE

The table below shows a summary of the differences between:

• running your own company
• operating through an FPS Group administered basic or PSU company
• PAYE through your recruitment agency

A PSU, administered by FPS Group, has been specifically designed to give you all of the benefits of being the sole employee of a limited company without the hassle and worries of running it. The PSU option is a very viable alternative for time-starved contractors and offers additional benefits to a basic umbrella company.

Benefits of a Personal Service Umbrella company

Your own Limited Company

If you have your own limited company (also known as a ‘personal service company’ or ‘accountancy service’), 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 Managed Service Company (MSC) legislation was enacted in the Finance Act 2007. There are uncertainties over the exemptions available for ‘Accounting Services' that mean service providers who currently claim to be exempt from the legislation may be caught out. This chance increases the more that the provider involves themselves with helping you to run the company.

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.

If you are averse to risk and do not want to have to take responsibility for running your own company then, an umbrella company is right for you.

Personal Service Umbrella company (PSU)

A PSU company administered by FPS Group offers many of the benefits available through a limited company - but without the burden of running it. FPS Group administers a PSU company for each individual worker. You are employed by the PSU and FPS Group as administrator to your PSU undertakes:

• invoicing your agency/client for the hours you have worked
• collecting payments from your agency/client
• calculating the PAYE and National Insurance contribution, deducting and paying it to the UK authorities
• making a net payment into your personal bank account
• compliance 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.

PAYE through your recruitment agency

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

Income Tax law forbids a UK agency from making a gross payment to an individual in most circumstances. So, if you are working through an agency that doesn't run a payroll for its contractors 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 entire 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 they want to be able to claim legitimate business expenses as they are incurred, have a single tax code and a single continuous employer 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 contractor. Is it too much to ask for?

Well at FPS Group 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.