Limited Umbrella
Service Provider Costs You pay a monthly fee to your accountant to manage your company’s tax affairs. You pay a weekly or monthly fee (margin) to the umbrella company.
Tax Efficiency The most tax efficient way to contract. Most directors take a low salary. No National Insurance is payable on dividends Your entire salary is taxed via PAYE. Less tax efficient than working via a limited company.
IR35 If caught, most (but not all) the tax benefits of being limited are lost. IR35 is irrelevant, as you are already taxed as an ’employee’.
Ease of Use Monthly admin required to help compile accounts, some annual obligations as company director. Very little admin.
Legal Duties Directors have a number of statutory and financial duties. No legal duties.
Set Up Company formation can be completed in a few hours, accountancy set-up should be rapid with a contractor specialist. Registration for taxes (VAT, Corporation Tax) can take a few weeks. Instant set-up with a contractor specialist.
Your Status You are the director of your own company. You are an employee of the umbrella company.
Duration Not ideal for short-term contracts, due to admin required to set up and then subsequently close the company. Good for short-term contracts.
Tax Planning Highly flexible, dividends can be timed to maximise use of lower tax bands Few tax planning opportunities are available.
Timesheets / Invoices You invoice the agency for work done on behalf of your company. You submit your timesheet to the umbrella. The umbrella invoices the agency.
Control You have a high degree of control over your business. Little control.
Low earning contracts Not generally recommended for contracts paying under £15/hour Good for lower-paid contracts.
Paying Taxes You are responsible for ensuring your company and personal taxes are paid on time. The umbrella company deducts taxes before you are paid.
VAT Joining the Flat Rate VAT scheme can be profitable – including a discounted rate in the first year. VAT is collected by the umbrella, no extra benefit to contractor.
Insurance Your company needs to pay for business insurances. Insurance cover is typically included in umbrella fee.
Expenses Higher scope to offset expenses against the company’s tax bill. More restrictive scope to reclaim expenses.
Business Ventures Essential if you want to run your own business, or expand beyond contracting at some stage. You are an employee. Not suitable for trading outside contracting.
Banking You must open a separate business bank account for your company. You only need to keep your own personal bank account.
Self Assessment All company directors must complete an annual tax return. No need to complete a tax return unless you earn untaxed income in addition to your umbrella earnings.
Image Conveys a professional image – may be helpful in certain contracting fields (e.g. interim management). No particular professionalism attached. Not an issue for many umbrella contractors.
Testing the Water May be better off using an umbrella if going limited appears daunting at first. Ideal if you want to try out contracting before making a decision on the best business structure.
Multiple clients Good if you intend to provide services to multiple clients. Not ideal if you plan to work for several clients at the same time.