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What’s Best for You: Umbrella or Limited Company?

All UK contractors will work either through their own limited company or an umbrella company. Both options have their own set of pros and cons so it’s best to weigh up your options before choosing how to operate. The route you choose will depend on the nature of your role and what best suits your business plans.

  • Limited Company – Choosing to operate through your own limited company involves creating a company which engages with agencies or clients on a business-to-business basis, through which you can sell your services.
  • Umbrella Company – When you use an umbrella company, it means that you become an employee of the umbrella company. This way, it will be the umbrella company that will invoice any agency or client that you work with as well as deduct tax, National Insurance and a fee, before paying you.

Removing Stress and Hassle

When you operate as a limited company, you have control over the logistics and day-to-day running of your business. While many contractors prefer this method of operating, others don’t and find that it can interfere with their day job. When you use an umbrella company, they will manage all the financial aspects of your business such as:

  • Payroll management
  • PAYE help and support
  • Keeping on top of client and agency payments
  • Calculating expenses and distribution
  • Other business, admin and financial duties.

It can be a difficult decision, but there are various aspects to consider before you choose the best option for you.

Things to Consider: Limited or Umbrella Company?

  • Are you an experienced contractor or a first-timer? If you aren’t experienced in contracting, it may be best to consider using an umbrella company while you learn the ropes. Alternatively, you may want to read up and dive right in and set up your limited company.
  • Is contracting a long-term career move or a job between roles? Depending on what type of career move contracting is for you, there will be an option that’s better suited to you. If you don’t see contracting as a long-term job, opting to work under an umbrella is probably best.
  • How much admin are you willing to do up and above your daily work? If you didn’t want the hassle of admin and paperwork, you might be best using the services of an umbrella company. On the other hand, some contractors do like managing the admin side of things.
  • How much do you plan on earning? For lower paid roles, an umbrella company is almost always the best solution. This is because it costs more to operate as a limited company, especially when you secure low paid contracts.

Knowing What’s Best for You

It’s worthwhile taking the time to really think about what you want from your contracting work. If you want to continue to work with clients and agencies but not worry about having to deal with the often complex business and financial side of things, operating under an umbrella company is probably the best decision for you.

However, if you want to run your business on your terms and have more input into the way that it’s handled and run, operating as a limited company might be the best route to go down.

- Posted Date: December 5, 2018

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