Umbrella VS Limited Company
If you’re thinking about making the leap to contracting, you certainly won’t be alone! But 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 whose roles fall outside IR35, 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 control your tax liability.
Contracting through a PAYE umbrella
This is a good option if you are new to contracting, your contract falls inside IR35, 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 will also receive the same rights and benefits all permanent employees enjoy, such as sick, materinity, parternity and holiday pay.
If you would like to speak to one of our approved umbrella companies, please click here.
*The law requires that 'Self employment' Ie being a sole trader, is not permitted for agency workers, and income tax and National Insurance Contributions must be deducted at source.
**Your bank account MUST be in the name of your limited company.
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