Which Should You Choose - Umbrella or Limited?

If you are new to contracting, choosing between limited or umbrella can be a difficult decision. There are advantages and disadvantages to both and you should always do your research to find the best payroll solution for you. We’ve put together a comparison of working through an umbrella company versus a limited company to help you understand which would be best for you. If you are still unsure or have any further questions, please do not hesitate to give our team a call on 01707 669023 and they will be happy to go through it with you.

Umbrella Company

An umbrella company is suitable for contractors in any industry, role or contract length. However, they are typically used by contractors on short term assignments, first-time contractors, contractors who do not want to set up their own limited company and those who are inside IR35.

Umbrella companies offer a simple method for you to receive payments from your end client. If you choose to sign up to an umbrella company, you become an employee of theirs and they will be responsible for your invoicing and payroll. Once funds have been received from your recruitment agency or end client, they will pay your salary after the relevant tax and National Insurance Contributions (NICs) have been made.

Umbrella Company UK Umbrella Or Limited

What are the benefits of contracting through an umbrella company?

  • All of the income you receive from your umbrella company is treated as salary and is subject to tax and NI.
  • IR35 doesn’t apply to umbrella company workers as the tax and NI will be deducted before your salary is paid into your bank account.
  • The umbrella company takes care of most of the administration associated with contract work – all you need to do is submit your timsheets.
  • Using an umbrella company is a low cost option and you can expect to pay between £10-25 per week.
  • As an umbrella employee you benefit from insurance cover and statutory employee benefits – similarly to permanent employees.
  • Joining an umbrella company is incredibly easy and you can be set up in minutes.

Like every service, there are also a few points you should consider before joining:

  • Umbrella employees are no longer able to claim expenses unless you are a mobile worker and not subject to SDC, and a majority of umbrellas will not process them.
  • Using an umbrella company is not as tax efficient as operating through your own limited company and you can expect to take home around 65% of your pay.
  • There are hundreds of umbrella company providers in the UK and some operate dodgy offshore or loan schemes promoting tax avoidance – avoid these at all costs as it could land you in a lot of trouble with HMRC.

Umbrella Company UK offers the perfect PAYE payroll service for contractors who do not want to set up their own company. We will alleviate the administrative burden associated with contracting so you have more time to focus on what you love. Give our friendly team a call on 01707 669023 to start the sign-up process or fill in the short form below.

Still unsure about umbrella? Check out our FAQs!

Limited Company

Setting up your own limited company is the most tax-efficient option for operating outside of IR35. You will become both the director and shareholder of your company and have the option to pay yourself with a combination of dividends and salary. Take home pay can be significantly higher operating through a limited company than an umbrella company.

However, the initial and ongoing administration associated with running a limited company can be slightly demanding and time-consuming. This is why many contractors choose to use a contractor accountant to save themselves some valuable time and minimise the paperwork they have to complete.

Umbrella Company UK Limited Or Umbrella Limited

What are the benefits of contracting through your own limtied company?

  • It is more tax efficient than working through an umbrella company as you can claim tax relief on certain business costs and expenses.
  • Your take home pay will be higher than working through an umbrella company as you can pay yourself through a combination of salary and dividends.
  • You have greater flexibility and control over your business finances and decisions.
  • Your client or agency pays into your business bank account and ocne you’ve set aside enough for tax and NI you can pay yourself.
  • Depending on your level of tax planning you can take home around 80% of your pay before dividend tax.

You should consider the following points before setting up your own limited company:

  • There is a lot of ongoing administration involved with running your own limited company and you are responsible for keeping track of expenses, submitting forms on time and invoicing clients.
  • Running your own limited company is very time consuming and you may find it beneficial using a contractor accountant so you can spend more time doing the work you love.
  • As a company director, you do not receive employee benefits and you are responsible for obtaining your own business insurance.

Our sister company Churchill Knight & Associates Ltd has helped over 20,000 contractors set up and run their limited companies. Their comprehensive limited company packages have been carefully constructed to suit contractors and freelancers at each career stage. If you would like to find out more about their limited company packages, give the team a call on 01707 871622 or request a callback.

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