Limited or Umbrella?

Limited Company

When setting up your limited company there is a lot to think about which can put people off if they don't know what they should do. You will need to form your limited company which isn't as arduous or time consuming as a lot of people think. You need to also set up a business bank account which again, isn't too time consuming.

You become the Director and a shareholder and hold the responsibility for the invoicing, the company bank account. You also control how much to pay yourself, and this pay is made up of a combination of salary and dividends.

Typically, you'll take home between 75% - 80% of your contract when working through your own limited company.


Umbrella Company

As a contractor you essentially become an employee of the umbrella company. You effectively become a PAYE employee again with the umbrella company taking responsibility for all your invoicing paperwork,
collecting payment and organising your tax and National Insurance deductions. All you need to do is submit your time sheets and let the umbrella invoice the end client for the work you've done.

Working through an umbrella company allows you to claim back some expenses however care should be taken when looking at the umbrella company's policies. The Inland Revenue will challenge companies they perceive to be actively encouraging tax avoidance through fraudulent tax claims so be cautious when checking their expenses policies.

You will typically expect to take home around 60% - 65% of your contract payment working through an umbrella company.

We work with the following umbrella companies:

Parasol Group

Umbrella

Liberty Bishop

Limited Company

Positives


  • The more tax efficient way of working
  • Greater opportunity for tax planning
  • You are able to claim a wider range of your expenses back
  • Access to the Flat Rate Scheme - allows you to keep some of the VAT you receive
  • You control your financial affairs
  • It isn't as difficult to run your own limited company as many people think

Negatives


  • There can be a fair amount of paperwork involved in running your own limited company
  • If you contract for only a short period and then go back to permanent employment it can be costly
  • Not ideal for contracts less than £25k per year

Umbrella Company

Positives


  • Simple to use - submit your time sheets and let the company sort out your payment
  • All tax and NI is deducted before you receive your money which means you will have no further taxes to pay
  • If you are working a short term contract then this is ideal
  • The better option if you contract earns you less than £25k per year
  • Someone else will be doing all your paperwork which can alleviate stress
  • Good if you are contracting for a short time in between permanent employment

Negatives


  • It is more expensive than setting up a limited company and your salary is subject to tax and NI
  • The umbrella company collects the payment from the client and then pays you which can potentially lead to complications - make sure you check out the best umbrella company before you use them

​Return to our contractor information page.

Find out more about Limited and Umbrella companies by contacting our team.

Take a look at our current contracts vacancies.