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.