When it comes to consulting business setup in UK or Ireland you pretty much have two options to choose from. Either you open Limited company or you hire other company as Umbrella. Here are some pros and cons of both.
Umbrella company is a service provided by other company to you. Basically you pay monthly fee and umbrella company sorts out your payroll, all accounting and insurance needs.Pros:
You can leave the company at any time. Usually umbrella company is the best option for first time contractor or if your plan is to be a contractor for short period of time.Cons:
Umbrella is not your own company. If you want to expense something like new laptop you will need to get approval from service provider. It also complicated if you want to get involved in extra activities like freelancing after work or open an online shop.
Limited Company is the best choice if your plan is to practice consultancy long term or grow and develop the business.Pros:
It is your own company, your business you can get involved in other activities freely also hire employees and expense everything what is directly related to your business. Save money in your company and invest it.Cons:
It takes more time to setup a brand new company than hire an umbrella. It is also hard to close it down. Running a company consumes more of your own time: sorting out expenses, getting insurance, hiring an accountant. You can’t run a company alone – company secretary is required by law.
Some of Limited Company cons can be solved by opening a company with your friend or a partner. In this case you both bring money into the company so upkeep costs are split in half in the way you can save around 1000 a year. Also you can’t legally run a Limited Company alone so two directors can be a perfect setup. Other option is to hire an accountancy which will act as secretary in your company. But be aware there is a saying that doing business together with someone is in some ways is similar to marriage, so make sure you are working with a person you can trust if you choose this path.
I know for my own experience that in order to make the best decision there are even more pros and cons which have to be taken into consideration. Each case is unique. But just sum it up if you are just starting or have any doubts try Umbrella and the go for Limited Company.