Umbrella Company UK

Umbrella Company vs Limited Company

The biggest question is either to work as a contractor, freelancer, or consultant. The most popular choices are either through your own limited company or as an employee through an umbrella company. Both the options have their advantages and disadvantages. To get you started let’s first understand what it means.The biggest question is either to work as a contractor, freelancer, or consultant. The most popular choices are either through your own limited company or as an employee through an umbrella company. Both the options have their advantages and disadvantages. To get you started let’s first understand what it means.

Umbrella Company

Under the umbrella solution, you become an employee of the umbrella company and are paid through PAYE. You are required to submit timesheets and expense details on a weekly or monthly basis to the umbrella company. The umbrella company will then generate an invoice for the end client or the agency and pay you a salary after deducting income tax, national insurance, and their margin for the services.

This solution is ideal for contractors and freelancers who are starting or planning to work on shorter assignments. It involves less paperwork as the umbrella company takes care of the administration hassle as you are employed by them.

Limited Company

A limited company is a service company that you can incorporate to run your business. To incorporate you need to register the company with Companies House, register for various taxes with HMRC set up a business bank account, and organize insurance cover. The limited company has statutory and financial obligations and is a separate legal entity from you. As a limited company director, you will be responsible for submitting all the relevant tax and business documents to HMRC and Companies House.

The limited company requires added commitment because of the statutory responsibilities and is suitable for contractors and freelancers who have a contract for more than 6 months and earning at least £15 per hour.

Compare your take home pay

The below table defines some of the important advantages and disadvantages associated with each solution, if still not clear please call us on 0203 818 9550.

Compare your take home pay

The below table defines some of the important advantages and disadvantages associated with each solution, if still not clear
please call us on 0203 818 9550.

Disadvantages

Umbrella Company

9

Limited company gives you a Professional status and an ability to Create your own Contracting brand.

9

It is the most Expensive way to operate as your entire income is subject to Tax and NI like a permanent employee.

9

The umbrella Company charges a margin to process a payroll.

9

Depending on the umbrella company is huge as they are responsible for collecting money you earn and then pay them.

Limited Company

9

There is less Privacy as most of the limited companies have most of your personal information.

9

You, as a Director, are responsible for filing for annual returns and accounts, invoices also higher administrative responsibilities.

9

As there are increased statutory responsibilities the accountancy fee maybe higher and the penalties for not complying with the obligations can be high.

Changing from a limited company to an umbrella company – can it be done?

Yes – with recent changes to IR35 rules, many contractors are finding themselves needing to make the switch from operating as a limited company to working with a PAYE umbrella company. Yes you can, of course, do this – and you can even maintain your limited company for the duration so you can continue working through a Limited Company in future. However, you will of course need to avoid any trading as this limited company for the duration of your work with the umbrella company.

For any other further queries Please call us on 0203 818 9550.