Umbrella vs Limited – how do they work?
The easiest way to explain how an umbrella company works is that it’s effectively the middleman between an umbrella contractor and their client.
The umbrella employs a temporary worker on behalf of an employment agency and the agency will then provide the services of the worker to their clients.
Because an umbrella contractor is considered an employee, it means they are entitled to many of the benefits that you would usually find with permanent employment.
This includes:
- Statutory sick pay
- Holiday pay
- Statutory maternity/paternity pay
- Pension scheme enrolment
- National Minimum Wage
- Working Time Regulations
They are not, however, able to take advantage of certain self-employed benefits, such as claiming back expenses.
A limited company contractor runs their own company and is entitled to full self-employed benefits, however, there’s a lot more responsibility involved compared to other types of contracting, especially if they hire their own staff.
Unlike an umbrella contractor who has all admin tasks sorted for them, the limited company contractor will need to make sure they meet all their tax obligations, ensuring they don’t miss certain deadlines. They will also need to complete a self-assessment tax return each year and pay any owed tax by the end of January.
Umbrella vs Limited – take home pay
The limited company route is most certainly the most tax efficient method of working and you can expect to take home around 75-80% of your earnings. But, as mentioned previously, there is a lot more responsibility that comes with this way of working.
As an umbrella contractor, you can generally expect to take home around 60-65% of your earnings, and although this is a considerably lower figure, there’s less admin to consider as well as employment benefits not applicable to limited company contractors.
There are pros and cons to each, it’s just a case of working out which one works out better for you and your lifestyle.
If you want to get an idea of how much you can earn as an umbrella company contractor or a limited company contractor, take a look at our Limited and Umbrella Take Home Pay page.
Finding an umbrella company
Here’s what to look out for when choosing an umbrella company:
- Having a personal touch
Ideally, it’s best to pick an umbrella that provides you with your own go-to person, so that if you have any queries or issues they can be resolved quickly. - Good reviews
Whether it’s word of mouth or doing your own research, it’s important to know what people are saying about a company. - How long have they been in business for?
The longer an umbrella company has been in business, the better, simply because this means that they have plenty of experience, which in turn should make them experts in their field, which can only benefit you! - Do they have any awards?
Being recognised for their achievements in the sector is most certainly a comforting factor when it comes to choosing an umbrella company.
Our award-winning sister company, Contractor Umbrella, is one of the longest-running and most respected names in the industry. If you’d like more information on contracting through an umbrella company, then give them a call on 01206 591 000 or email jaime.thorpe@contractorumbrella.com.
We hope you’ve found this page useful. Our team of experts are available to answer any queries you may have, so drop us a line on 01442 795 100, email sophie.lewis@dolanaccountancy.com, or contact us via live chat.
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