Umbrella Company vs Limited Company

Umbrella Company:

Advantages:

  • Very easy to use, you simply enter your timesheet and expense details and wait to be paid.
  • All tax and NI is deducted before you receive your money, so you will have no further taxes to pay.
  • Ideal for short term contracts.
  • Ideal for contracts less than £25k per year.
  • Good if you are unsure if contracting is for you and you’re really just in between permanent jobs.
  • Someone else will be doing all the paperwork.

Disadvantages:

  • The most expensive way of working. You will receive a salary that is subject to full PAYE Tax and NI, it’s just like being a permanent member of staff again.
  • You are reliant on the umbrella company to collect your money from the client or agent and then to pay it on to you.

Limited Company:

Advantages:

  • The most tax efficient way of working.
  • Claim a wider range of expenses
  • Access to the Flat Rate VAT scheme.
  • You keep complete control of your financial affairs meaning you do not have to risk your money with any third party administrator.
  • Running your own business isn’t difficult; submit spreadsheets to your accountant – just like umbrella time-sheets and expenses.
  • Greater opportunity for tax planning than Umbrella Company

Disadvantages:

  • There is a certain amount of paperwork involved, usually about 10 – 15 minutes per month.
  • Can be costly if you contract for a very short period of time, then go back to permanent employment.
  • Not ideal for contracts less than £25k per year.