Limited vs Umbrella

(3 minutes to read)

Limited vs Umbrella is the most common question we get asked. As a contractor, you will likely have heard a lot about both Limited Companies and Umbrella Companies. There is plenty of conflicting information out there and it can be difficult to make an informed decision, about the best option for you. Luckily, this guide is here to help you make the right choice.

Limited Company

Setting up as a Limited Company means you are an independent entity, responsible for the company’s financial affairs. Your company holds a contract with the end client or recruitment agency and invoices them directly for the agreed pay rate. As the company director, you – with advice from your accountant! – handle invoicing, the company bank account and decide how to pay yourself. You can claim a wider range of expenses, as long as you are working Outside IR35, see our IR35 section for further information. A Limited Company is the most tax efficient way to work and you generally take home 75-80% of your earnings.

Umbrella Company

Working through an Umbrella company means that you become an employee of the Umbrella Company. You typically only need to submit timesheets and expenses and they will handle the rest. The Umbrella Company take their profit from the income they receive, from the recruitment company/end client, and is responsible for paying all applicable taxes and National Insurances before you receive your pay. The expenses you can claim through an Umbrella Company are more restricted. Through an Umbrella Company, you generally take home 60-65% of your earnings. However, the administrative burden is lower and you do receive the benefits of employment – statutory sick pay, parental pay, insurances and suchlike.

Limited vs Umbrella – So which one should I choose?

You should work through a Limited Company if…You should work through an Umbrella Company if…
You earn over £25,000 per year, or £100 per dayYou earn less than £25,000 per year, or £100 per day
You want to maximise your take home pay and minimise your tax liabilitiesYou want to minimise administration and paperwork
You are a career contractor or expect to be contracting for an extended period of timeYou are only contracting short term or don’t know if you will continue to contract
You want to work for yourself and take responsibility for your own financesYou want to be employed, with the employment rights that includes
You are happy to determine IR35 status and accept the risk of being caught Inside IR35You want the risk of IR35 to be removed

You should be aware that…

You are responsible for invoicing and maintaining accurate accountsAll income is subject to PAYE tax and NICs, and your take home pay will be lower
You will need to arrange insurance in order to work for clientsThe Umbrella Company makes its profit by taking a margin from your invoice value
There is additional administration involved, compared to working through an UmbrellaOnly very limited expenses can be claimed through an Umbrella

Dolan Accountancy offers both a Limited and Umbrella solution for just £95 + VAT per month. To find out more about our services click here or to find out more about contracting, download our complete contractors guide.

Limited vs umbrella? Still unsure?

Speak to Sophie on 01442 759100 or email sophie.lewis@dolanaccountancy.com

Email Sophie

Limited vs Umbrella Questionnaire

Is your daily rate over £100 per day?

Is your contract going to be for over 3 months?

Are you happy with 15/20 minutes administration per month?

Why Dolan Accountancy?

Dolan Accountancy was set up by Simon J Dolan, the man behind the well-known brand SJD Accountancy. With over 25 years experience in the contracting marketing, Dolan Accountancy has the heritage, reputation and credibility you can trust. Working closely with our sister company, ContractorUmbrella, it means we can offer one low cost, fixed fee package at £95 + VAT per month. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost. We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours.
  • Free use of ContractorUmbrella – With changes in Public Sector IR35 Legislation we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, ContractorUmbrella.
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams.
  • Free Access to FreeAgent – The founder behind the multi award winning FreeAgent platform was one of Simon’s first clients, therefore it only seems fitting that we offer all of our clients access to FreeAgent, free of charge.
  • Free Business Banking – We have decided to waive our commission so our clients can use CashPlus free of charge for the first year, saving you £69.
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status.
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative.
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795100 or email sophie.lewis@dolanaccountancy.com or jaime.thorpe@dolanaccountancy.com.

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