Creating an LLC
October 20, 2004 10:15 AM   Subscribe

I've been a freelance web designer operating as a sole trader for six months. Now I've gotten a contract that can only hire people as limited companies. I've been told to use an umbrella company, but after reading up on them online, I'm just at a loss. I can understand what they do, but why don't companies want sole traders? And does anyone have any recommendations on umbrellas to use? (Save, of course, the Umbrella Corporation)
posted by Katemonkey to Work & Money (4 answers total)
From what I've been told, some companies have got into trouble with sole traders who have not declared income and the Inland Revenue has got involved.

I've also been told that some companies want to deal with people operating as limited companies because it's easier for them when it comes to admin.

Your best bet is to speak to a human being at one of the umbrella companies and also have a word with an accountant who is used to dealing with contractors in your situation.

I'd be interested to know how much these umbrella co.s charge - I use the Ltd. co. & accountant route for my design/publishing/training work and it doesn't cost that much.
posted by i_cola at 10:53 AM on October 20, 2004

That makes sense. It's all actually making a bit more sense in my head, it's just the UK tax system is so alien to me that I end up freaking out whenever I hear the word "tax".

From what I've seen through a trawl on usenet, Orange Genie seems like a good umbrella corp. They charge around £15 per week or £40 per month.

How much does the Ltd. co and accountant route work out to? I'm interested in that, but all of this whole contract/ltd/umbrella thing fell on my head today and it starts tomorrow, so I'm having to go for the quickest and easiest route. *sigh*
posted by Katemonkey at 12:02 PM on October 20, 2004

To set up a Ltd company, etc, would take you a week, at least, for all the papers to come through, and for you to get your company number.

A 'new company' formation company charged my company about £100 for initial setup.
posted by ajbattrick at 4:47 AM on October 21, 2004

In the US, at least, it's a tax and benefits issue, since an individual who's paid directly can be judged as a "common law" employee after the fact. (This usually happens when they use someone's services above a certain threshold, like more than 30 hours a week, for a sustained period of time.)

On a tax basis, the company's all of a sudden liable for paying all the various taxes they needed to on a salary, compared to fees.

In addition, a contractor who successfully sues to be judged as an employee can become retroactively eligible for benefits like health insurance and anything else the company offers its employees. (Microsoft lost a big case like this a few years ago.)

Paying fees to a corporate entity removes all possibility of that happening, so more and more companies insist on doing business that way.
posted by LairBob at 5:48 AM on October 21, 2004

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