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Limited or Umbrella – An Illustrated Guide

Limited or umbrella? The question on every contractor’s mind. Our handy infographic will help you make the best decision.

 

 

 

Limited or umbrella: if you’re just starting out on your self-employment journey, it’s likely that this will be the first choice you’re going to make. If you’re looking for advice about whether to work under an umbrella company or your own limited company structure, our illustrated guide is here to help.

limited or umbrella

Contracting through your own limited company

Contracting through your own limited company means that you will be in charge of paying yourself a salary, your taxes and filing your accounts. 

Your responsibilities

As a limited company director, your business will exist as a separate entity, so you will need to register with Companies House, to open a separate bank account and to find an appropriate business insurance package.

Though there is more work involved, a limited company offers more freedom about paying yourself tax efficiently, access to the Flat Rate VAT scheme and access to claim a number of expenses.

Take home pay

Because you can control how to pay yourself via a salary and dividends, limited company directors can typically expect to retain more of their earnings, though the exact figure will vary based on circumstances.

Working through an umbrella company

Deciding to work under an umbrella means that you will become an employee of that company for a fixed term.

Your responsibilities

When you work through an umbrella company, your administrative responsibilities are minimal: you will just need to submit a timesheet and log your expenses (if necessary) and your client will pay you a salary.

Because they’re easy to use, umbrella companies are often the first port of call for those new to contracting or who are only planning to contract for a short period of time. You will still receive employee benefits such as sick pay and holiday entitlement.

Take home pay

Your tax and National Insurance will be taken care of on your behalf and you will be paid a salary by your employer. Your take home earnings will usually be around 60-65% (though this depends on a number of factors based on your unique circumstances).

Need support on your contracting voyage?

Still unsure how best to operate? If you’re for something a little more in-depth about contracting through a limited a company, and what would suit you, dip into our comprehensive guide.

Alternatively, if you have any questions, call us on 01253 362 062 to discuss your options and we’ll be happy to help.