Umbrella VS Limited Company

If you’re thinking about making the leap to contracting, you certainly won’t be alone! What’s more, you’ll already be in high demand as more and more businesses are turning to contractors to plug the skills gaps they’re currently facing.

Before you get there, you’ll make a number of important decisions that will shape your future career. The first of these is: Do you form a Limited Company or use an Umbrella Company?


Forming your own limited company

This is the most popular choice among contractors, as contracting under your own limited company means that you will be in charge of your accounts, your salary and your taxes. You will need to establish your limited company and open your business bank account. As the limited company director, you will control invoicing, the company bank account and you’ll be able to pay yourself a combination of salary and dividends to reduce your tax liability.


Contracting through a PAYE umbrella

This is a good option if you are new to contracting, or you are just testing the waters before you commit, as you can focus on your new career without the worry about any additional administration duties. The umbrella company will take on all the responsibility of Invoicing, Income Tax, and National Insurance Obligations, by acting as your employer. You submit your timesheet to your umbrella company who will then pay you a salary with National Insurance and tax already deducted. You’ll also receive the same rights and benefits all permanent employees enjoy.