Limited or Umbrella – which route is right for you?

Working as a contractor means you have to take responsibility for many decisions that an employee would not to ensure you make a success of your career. Deciding between to register a limited company and an umbrella company for trading is one of the first decisions you need to make as this will need to be decided before you can begin to trade. There are advantages and disadvantages to both types of company and individual circumstances play a key role in the final decision.

Futurelink Group provides support and solutions for contractors who choose both these types of company as well as others and therefore whichever you choose, there is still scope to work with us.

Choosing between to register a limited company or an umbrella company is highly dependent on many key factors including:

  • The length of your contracts
  • The basis of your pay
  • The working practices in place
  • Your anticipation of future contracts
  • Individual preferences

Below is a closer look at each type of company in isolation, considering their pros and cons in more depth.

Limited Company

A limited company is an organisation which is setup so you can run a business. A limited company is responsible in its own right for everything it does and the finances of a limited company are separate to any personal finances you have. Any profit made through the company is owned by the company and corporation tax is paid on them. Once tax is paid, the profits can be shared.

Advantages of a Limited Company

Opting to run your contractor work through your own registered limited company is usually considered the most tax efficient way of working, as long as you are considered outside of IR35. A limited company gives you further flexibility when it comes to business expenses with the ability to claim on a range of items including training, software and necessary equipment.

Another key benefit of choosing to trade as a limited company is the sole control you have over your business affairs. You have complete financial control and working with the right accountancy firm can ensure you work in a tax efficient manner. The final and perhaps a major benefit of choosing to trade as a limited company is the opportunities it can open up to you, there are many organisations who will only work with limited companies. This can mean you lose out on contracts where limited companies have placed bids alongside yours.

Disadvantages of a Limited Company

In the same breath that having full business control is a good thing it can be overwhelming for newcomers to contracting. Working with a reliable accountancy and financial planning partner can help but it is a big decision that shouldn’t be taken lightly. Ensuring you have full awareness of the key dates in the tax year calendar and a commitment to good record keeping is essential for when you get started.

The final issue that some contractors may have with a limited company is the time it takes to process all the administrative tasks involved. When compared with an umbrella company there is more admin to do and you need to think whether this is something you want to deal with.

Umbrella Company

An umbrella company is a type of company which acts similarly to an employer for contractors. It provides an employer like status for the duration of a contracted assignment. Your umbrella company works on your behalf to ensure that all necessary documentation is present and things are financially in order.

Advantages of an Umbrella Company

Choosing to join an umbrella company means you are officially a PAYE employee but are still able to make claims for some business expenses. This option also means that your tax and NICs are managed for you by your chosen umbrella company partner and they will often manage your invoicing, deductions and payment plans too.

Fees for an umbrella company is only taken when your payments are being processed and there is no need to setup a limited company initially, you can just register to use your chosen umbrella company. Umbrella companies are usually chosen by contractors who have short-term contracts regularly and don’t want the perceived stress of setting up a limited company.

Disadvantages of an Umbrella Company

Choosing to work under an umbrella company means you are a salaried employee and therefore subject to PAYE tax and NICs. As a limited company you have the option to pay yourself through dividend payments which mean PAYE tax and NICs aren’t relevant.

Choosing to work under an umbrella company also means that you are subject to their invoicing procedures and the processing of your payments correctly and on time. Finding the right partner is essential as you must be able to trust them implicitly.

The Cost Factor

Often the main deciding factor for a contractor is which method is the most costly. In this instance they both have their costs in both time and capital.

There are a wide range of different figures and statistics relating to take home pay but most experts settle on the take home pay of an employee of an umbrella accountant being around 55-65% and those working under a limited company can expect to see 75-85%. The majority of individuals who choose to work under an umbrella company value the convenience over the cost and can afford to take the hit that comes from being a PAYE employee.

How can Futurelink Group help?

Whether you’ve made your mind up or not Futurelink Group provide solutions for contractors in both camps. Our full range of contractor solutions include Umbrella PAYE and limited company setup and support and with compliancy a key factor in all that we do, you can be sure we’re a company you can trust and build a good working relationship with.

Our business includes an accountancy practice, tax advisory service, invoice finance solution and recruitment incubation and start-up solution service, ensuring all aspects of a contractor’s business are covered.

“I’ll most certainly pass on your details to people I know. You run a great service there, keep up the good work.”

William Cadden, Self-Employed Contractor

“For me, Futurelink Group was the best solution, as a foreign and a lack of knowledge of the UK rules, they were extremely helpful in all aspects. Always fast in answering all my questions. I almost didn’t do anything and they put me on track to invoice and receive my payments. I can fully recommend them.”

Ronaldo, Umbrella PAYE contractor

“WS Contractors Ltd are extremely happy with the services that Futurelink provide. The efficient and friendly staff are always willing to help and assist. The feedback from our operatives is positive and pleasing. We would recommend Futurelink to all new recruits joining our team.”

Michelle Hughes, WS Contractors Ltd

“We at Gemini would like to thank you and your team for all your help and support in connection to payroll solutions. We find Futurelink Groups approach to be responsive to action when required with a courteous and bright manner – keep up the good work!”

Frank Mcfarlane, Gemini Security Services Ltd

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Futurelink Group consists the following companies, all incorporated in England & Wales: Futurelink Group Ltd (0620 6129), Futurelink Accountancy Services Ltd (0532 0147), Team Construction Ltd (0493 5270), Horizon RCS Ltd (0620 6202) and Horizon RCS Europe Ltd (0620 6136). Privacy Policy | Terms & Conditions