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Limited Company OR Umbrella Company

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Due to ever rising demand in the contracting market, almost everyone is tempted to start contracting. But, before you start, you need to have a proper look at your option.

Initial setup and the decisions you take before taking up contracting is very crucial. Because, it could prove to be extremely challenging to switch boats; at a later stage.

First and foremost, after securing a contract or maybe even while you’re hunting for a new contract, you need to decide on your trading method, i.e.:

  • Limited Company

  • Umbrella Company

For some Contractors, going through the umbrella company route would be the obvious option. However, there are many, who would prefer Limited Company method over any other trading mode.

Let’s do a quick comparison between Limited Company and Umbrella Company:

Benefits of Limited Company Benefits of Umbrella Company

Better Take Home Pay

Quick Setup and easy to use

Higher Credibility

Ideal if you don’t to get into managing your own financials (results in less take home pay)

You have full control over financials with low financial risk

Tax and NI is deducted before you get your pay, so no need to worry about tax returns or expenses

Tax planning opportunities

Ideal option for short term contracts

If you are expecting a turnover of over £25000 a year then, Limited Company option would be the ideal choice. Else, umbrella company should be the option. 

Source: Self

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Steve Smith

Steve has been associated with the UK Contracting industry for over a decade now. He is a sports enthusiast and a die hard Arsenal fan.

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