Umbrella vs Limited Company

Chris Andreou

September 3, 2021

Umbrella vs Limited Company guide
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Contractors

Let’s compare the advantages and drawbacks of setting up a limited company VS working through an umbrella company.

Why set up a limited company?

  • Limited liability
  • Tax efficiencies
  • Increased credibility

Why not set up a limited company?

  • Increased legal and administrative requirements
  • Less privacy; details of the company are publicly available

Why work through an umbrella company?

  • Ease of use
  • Flexibility
  • Entitled to statutory benefits

Why not work through an umbrella company?

  • Costly way to operate
  • Lack of control

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What are the disadvantages of contracting? Guide

What are the disadvantages of contracting?

The disadvantages of contracting are:

  • Uncertainty: Due to the flexible nature of their working relationships, contractors aren't guaranteed work after the end of assignment or project.
  • Responsibility: Not only is it the responsibility of the contractor to find work, they are also responsible for their own finances.
  • Employment rights: As a contractor, you generally wouldn't find yourself holding employment rights that permanent employees benefit from.
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What are the advantages of a Limited Company? Guide

What are the advantages of a Limited Company?

The advantages to setting up a limited company are:

  • Owners aren't fully liable
  • Tax savings
  • Using a limited company structure lends credibility to your business
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Umbrella vs Limited Company Guide

Umbrella vs Limited Company

Let's compare the advantages and drawbacks of setting up a limited company VS working through an umbrella company.

Why set up a limited company?

  • Limited liability
  • Tax efficiencies
  • Increased credibility

Why not set up a limited company?

  • Increased legal and administrative requirements
  • Less privacy; details of the company are publicly available

Why work through an umbrella company?

  • Ease of use
  • Flexibility
  • Entitled to statutory benefits

Why not work through an umbrella company?

  • Costly way to operate
  • Lack of control
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When do I need a Limited Company? Guide

When do I need a Limited Company?

There is no clear cut time as to when you should start working through your own limited company. With other routes available-such as operating as a sole trader, or working through an umbrella company-it is always worth weighing up what is best for you and your circumstances.

With that being said, if you plan to work as an independent contractor for the foreseeable future, opening your own limited company at the early stages can maximise your opportunities for reaping the benefits of having your own company straight away.

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What are Personal service companies? Guide

What are Personal service companies?

While there isn't a legal or formal definition of the term, personal service companies (PSC) refer to limited companies that are owned by a contractor, who is also the only shareholder and sole director. In some instances, the company may also be owned by a very small group of individuals.

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How do I register a limited company? Guide

How do I register a limited company?

There are a couple of ways to go about registering a limited company:

  • Register directly through Companies House
  • Go through a third party: An accountant or company formation service can help you process your application, significantly lessening your admin burden. Beyond the application, a good third-party service can also provide accounting advice, help you fulfil your filing obligations and assist with other admin tasks.

We've included further details in our guide on setting up a limited company.

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What is an independent contractor? Guide

What is an independent contractor?

An independent contractor is an individual who is engaged in a work agreement with a company or entity as a non-employee.

Factors that identify an independent contractor are:

  • They have a greater degree of control over their work
  • They offer a special skill set
  • They are able to get a replacement
  • They aren't entitled to employment benefits
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When do I need a Limited company as a contractor? Guide

When do I need a Limited company as a contractor?

There is no clear cut time as to when you should start working through your own limited company. With other routes available-such as operating as a sole trader, or working through an umbrella company-it is always worth weighing up what is best for you and your circumstances.

With that being said, if you plan to work as an independent contractor for the foreseeable future, opening your own limited company at the early stages can maximise your opportunities for reaping the benefits of having your own company straight away.

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3 Ways to Register Your Company for Free Guide

3 Ways to Register Your Company for Free

Registering a company is a one off cost of £12 and done through Companies House. However, there are a few different ways that you can get this fee waved with other business services that you need.

We'll walk you through how to register your company for free and the perks that you'll get with each.

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Guide to employing or hiring contractors Guide

Guide to employing or hiring contractors

You have an important project at hand, and you require a contractor's specialist knowledge to fill in the skill gap in your team. You're ready to hire-except that you're unfamiliar with the hiring process.

If this is your first time hiring a contractor, our article will guide you through the essentials.

We'll cover the following:

  • Sourcing for contractors
  • Assessing contractor CVs
  • Interviewing a contractor
  • Payments
  • Contract terms
  • Terminating a contract
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Umbrella Companies Explained: FAQs for Contractors Guide

Umbrella Companies Explained: FAQs for Contractors

Whether you're newly self-employed or an experienced contractor, there'll be aspects that you need more information on when you're deciding if working through an umbrella company is right for you.

To help you along, we've compiled a list of FAQs that contractors often ask:


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What are the advantages of an Umbrella company? Guide

What are the advantages of an Umbrella company?

The advantages to working through an umbrella company include:

  • You'll deal with less administrative work. It's also quicker and easier to join an umbrella company, compared to setting up your own limited company.
  • As an employee of the umbrella company, you're entitled to statutory benefits
  • It can be a great option for short term contractors, as they won't have to go through the hassle of setting up a limited company and making the arrangements for it to be dissolved.
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What is subcontracting? Guide

What is subcontracting?

As an independent contractor, there may come a point in time where you need to consider subcontracting-you might decide to take on work as a subcontractor, or hire a subcontractor for your projects.

Whichever option you're exploring, how do you decide if the benefits truly outweigh the cons? And are there important tips you need to keep in mind?

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Key considerations when you register a Limited Company Guide

Key considerations when you register a Limited Company

As a freelancer, contractor, or small business, it is typical to start with the simple structure of operating as a Sole Trader.

While taxes and other administrative work may be relatively easy when you are a Sole Trader, as your volume of business goes up, there are more and more reasons to take on the task of becoming a Limited Company.

For instance:

  • A Limited Company protects your personal assets. If you are found liable in a lawsuit, only your business assets are at risk.
  • A Limited Company is usually more tax efficient than being a Sole Trader.
  • Once you have your name chosen as a Limited Company registered through Companies House, no one else can take your company name.

Luckily, running a Limited Company doesn't have to be exceedingly complex, though following a set plan will help to keep the complexity to a minimum.

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How do I become a contractor? Guide

How do I become a contractor?

To become a contractor, you need to:

  • Do your research: The first step you'll need to do is to conduct in-depth research, and think through various important factors-from finances and tax implications, to lifestyle and business opportunities-to ascertain if becoming a contractor is the right decision for you.
  • Decide on how you'll operate: As a contractor, you may operate as a sole trader, through your own limited company, or work with an umbrella company or recruitment agency.
  • Develop a business strategy: Strategic planning isn't set in stone-but working out a plan is still helpful, as it is a way for you to consider multiple perspectives, identify potential opportunities and pitfalls and conceptualise back up plans you could fall back on.
  • Get your business finances and insurance sorted out: Setting up a business bank account, registering a company, determining the level of accounting support you need and investing in business insurance are important aspects you need to sort out before you begin contracting.
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How do I register my business? Guide

How do I register my business?

To register a business as a sole trader, you need to:

Once you've registered, you need to fulfil your responsibilities as a sole trader. These include:

  • Keeping records of your sales and expenses
  • Submitting a Self Assessment tax return each year
  • Paying income tax and National Insurance Contributions

To set up a limited company, you need to:

  • Decide what type of limited company you need
  • Choose a business name
  • Choose how to set up your limited company
  • Complete the company formation process
  • Open a business bank account
  • Inform your stakeholders
  • Get your VAT registration or transfer sorted out
  • Set up your payroll
  • Update your company details
  • Get your books sorted out

To set up a business partnership, you need to:

  • Choose a business name
  • Choose a ‚Äònominated partner'
  • Register with HMRC
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Contractor Business Services UK Guide

Contractor Business Services UK

Firstly, we'll start with the services that we provide which covers the critical things you'll need to start and operate your contracting business.

For those just getting started, we provide free company registration on Companies House. This is typically done within 24 hours of submitting your details to Forma. It can take under 5 minutes to provide all your details and we'll just need a proof of ID and proof of address for each of the company directors.

We cover all of your key company filing requirements like annual accounts, confirmation statements, corporation tax and ensuring you meet all filing deadlines.

We also help with your annual Self Assessment which is a requirement for all company directors.

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What are the different types of contractors? Guide

What are the different types of contractors?

There are different types of contractor jobs available across diverse sectors. Contractors may be hired to perform services such as:

  • Marketing
  • IT maintenance and support
  • Graphic design
  • Recruitment
  • Business development
  • Catering
  • Construction work
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How to Become a Contractor Guide

How to Become a Contractor

So, you're thinking of becoming a contractor.

There's probably one of three reasons driving this:

You've received a Job Offer

You've just received a job offer, and now need to decide on whether to set up a limited company, umbrella company or become a sole trader (or you may not have the choice in deciding).

You're in the right place.

This guide will walk you through the best company structure for you, accounting support, VAT, business services you need to consider and finding new opportunities.

You want to increase your pay

You'd like to increase your pay by switching from permanent roles to interim/ contractor roles.

Contracting can be very lucrative.

You'll need to be comfortable with a certain level of risk (short notice periods), increased monthly admin (as a Limited Company) and less benefits than being an employee (paid leave, sick days).

However, you'll earn more, get greater flexibility and hopefully grow a consulting business.

Project Flexibility

Getting multiple requests for your services? Amazing.

Setting yourself up as a contractor through a Limited Company means you can start expanding your client base rapidly and work on different projects a few days a week.

You can still set this up as a current PAYE employee of a company, and this can be a great stepping stone to launching your own business.

Let's talk about the right business structure for you.

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Sole Trader vs Limited Company Guide

Sole Trader vs Limited Company

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