Limited Company or Umbrella

If you’re new to contracting, then from the outset you need to make your own decision on how you wish to operate.

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Limited Company or Umbrella

You may wish to take an easier path if this contracting malarkey is new to you – in which case, an umbrella company may be the way to go.

However, for those of you looking to make more from the choice you’ve made to work as a contractor, working through a limited company has many benefits over using an umbrella company. It’s relatively easy to set up your own business, or if you’re already with an umbrella, switch over to using your own company.

As a specialist accountant for contractors, we’re here to help at every step.

Benefits of going Limited versus Umbrella

Don’t be concerned with masses of admin or increased fees, as a lot of the chores which come with going limited can be outsourced to a specialist if you choose to sign up with an accountant.  Whilst it can be more expensive than using an umbrella service, the benefits of using an accountant make the limited company route much more appealing if you’re considering staying in this type of work for a longer period of time.

When it comes to paperwork, there is more paperwork associated with running your own business, which you ultimately become responsible for.  But whilst you’ll need to spend time invoicing your clients and claiming your expenses each week for the work you do, this is similar to the work you have to do to submit time sheets and expenses with most compliant UK umbrella companies.

The main benefit of starting to work through your own limited company will be an increase you see in your take home pay.  This is achieved by withdrawing your company profits in a tax efficient manner through a combination of salary, expenses and dividends. Your own income will be approximately 80% of your turnover, while with an umbrella it may only be around 70%.  This is largely due to the reduced level of National Insurance contributions you make as a Limited Company director, if withdrawing funds in a tax efficient manner.

Operating through your own business also affords you with a degree of protection in the form of limited liability, meaning your personal assets are not at risk should your business fold.

Limited versus Umbrella Comparison

Here’s a quick summary as to why you should consider going limited, alongside what else you’ll need to consider if you do.

Limited Company

Umbrella Company

Professional Status
Tax Efficient Income
Tax Planning
Claim Business ExpensesLimited
Limited Liability Protection
Control over your finances
Legal Responsibilities
IR35 Risk
Self-Assessment Annual Filing
Ideal contract length6 Months +Any contract

How to switch to Limited

In reality, you only need to tell your current umbrella that you’ll be switching to a limited company service, and then make the decision on the type of accountant you wish to switch to. There’s no legal reason why you can’t move away from umbrella for any contract you work on, so be wary of any agency who claims this.

If you’re interested in finding our more about how we can help, or even sign up for our accounting service, we’ll just need 10 minutes of your time to get set up, and we can even give you a personalised calculation to show the financial benefit you’ll receive by using a limited company accounting service.