Umbrella Company to Limited Company

Umbrella company vs limited company

An umbrella company employs a temporary worker on behalf of an employment agency and the agency then provides the services of the worker to their clients.

It’s a self-employed route ideal for those who want some of the perks of being self-employed, such as flexibility with a better work-life balance, but don’t want to deal with the admin side of running a business.

It’s also a path much better suited for those who expect to earn less than £25,000 per year (or £100 per day) and who are only planning to contract on a short-term basis.

A limited company, however, is for those who wish to have complete control over a business and their career, are in it for the long term and expect to earn £25,000+ per year. They also need to be happy to take on the additional responsibilities that come with running a company.

For more information on this, take a look at our Limited vs Umbrella page.

Umbrella company to limited company

A lot of people will choose the umbrella route first when they become self-employed – it’s appealing for those who have just left permanent employment and are new to the contracting world, as it isn’t quite as much of a leap compared to other avenues and it offers some of the added security found with traditional employment.

Going from umbrella contracting to running your own limited company is a fairly easy procedure.

You’ll just need to notify your umbrella company that you wish to leave – it’s usually best to round your last day off at the end of a week or month, if possible.

It’s also really important that you sort out any holiday pay that you may be owed from your umbrella. Because of the way that umbrella holiday pay works, you may have accrued your pay, meaning you could be owed quite a bit.

You’ll then need to start the process of setting up your limited company, which includes:

• Picking a company name
• Choosing a director and potentially a company secretary
• Choosing shareholders/guarantors
• Registering your company

Other contracting options

Apart from umbrella and limited company contracting, there are a couple of other self-employed structures you can choose from:

Limited Liability Partnerships
A Limited Liability Partnership (LLP) is somewhat similar to a limited company; it’s a way for two or more people to come together to carry out business projects and activities.

Many people choose this route because joining with a business partner means you can put your individual skills and expertise together, as well as spread the level of risk that comes with running a company.

Take a look at our Limited Liability Partnerships page for a more in-depth look at how this works.

Sole trader
A sole trader runs their own business – registering as self-employed and reporting their income, expenses and tax to HMRC on a self-assessment tax return.

Unlike a limited company contractor, a sole trader is not a separate legal entity, which means they are personally liable for any debts or losses incurred by their business.

Read our How to set up as a Sole Trader page for more information on this.

If you’d like to sign up or need any further information, please call one our friendly experts on 01206 591 000 or email Jaime at jaime.thorpe@contractorumbrella.com.