Limited company vs Umbrella
What are the differences between an Umbrella and limited company structure
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Limited Company or Umbrella?
Working as a contractor can be a very rewarding career path, giving you flexibility, varied career options and potentially better take-home pay. However it is important, before you start, that you consider all your options and ensuring you have fully understood the differences between them.
At JSA, we are experts at both limited company accounting and Umbrella employment and therefore can provide unbiased bespoke advice based upon your individual requirements.
Limited Company
What is it?
A separate legal entity that you run as a director and shareholder. You will need a business bank account and the company will pay its own taxes. You will need to declare wages and dividends as your salary payments. A limited company is flexible but can involve an administration burden.
Set Up
Takes longer, there’s more paperwork involved and you will also need to go through the process of registering a business bank account.
Take-home pay
Generally, this will provide you the best take-home pay as you will take money from the company as wages and dividends.
Administration
You will be responsible for filing various company documents with HMRC and Companies House, plus ensure all taxes are paid on time.
Control
As you will be a director and shareholder, you will control the future of the company and consquentially your own career. You are free to take on more contracts and do other work.
Umbrella Solutions
What is it?
You will become an employee of the Umbrella company. All your taxes and National Insurance contributions are taken care of and you will receive a net salary each week, or month based upon the hours worked. This structure is simple and involves the least amount of administration work.
Set Up
Except for the initial registration process, setting up with the Umbrella company involves very little else and therefore is quick and simple to set up.
Take-home pay
The Umbrella company will deduct tax and National Insurance from your pay. The level of take-home pay will generally work out less than as a limited company.
Administration
Apart from going through the registration process and uploading your timesheets, there is little else you need to be involved with.
Control
Limited ability to control your rates of pay and methods of payment, which will always be PAYE.
TAKE-HOME PAY CALCULATOR
Find out how your take-home pay compares between a imited company contract and Umbrella structure
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Limited company vs Umbrella
Are you not sure whether you are better off working through a Limited company or an Umbrella Company?
This video, presented by Chris James Director of Accounting Services at JSA Group and Chairman of The Freelancer & Contractor Services Association (FCSA) will talk you through the differences of each option to help you make an informed decision as to which will suit your situation best.
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