Limited or Umbrella – Which should you choose?
Most contractors and freelancers get paid through their own limited company or as an employee of an umbrella company. There are pros and cons to both option, and whether you choose limited or umbrella should depend on your contract and what you’re comfortable with.
The accountancy and payroll option you choose is completely up to you, although there are some aspects you should consider, such as IR35 legislation. If you are new to contracting, IR35 is a piece of legislation that determines how contractors pay tax. More details on this can be found in our IR35 guide.
Some agencies and clients will recommend an umbrella company if you are caught by IR35, especially if you work in the public sector. Our sister company can help you with umbrella payroll.
Setting up a limited company as a director can be the most legally tax-efficient way to get paid as a contractor. You have the option to pay yourself through salary and dividends, claim certain expenses and reclaim some VAT expenditure. This allows you to save more on tax compared to other payroll and accountancy routes.
A limited company is usually suited to contractors who:
- Expect to contract for the long term, whether this means taking on several contract roles or one long-term contract
- Are happy to complete some of their own admin in order to increase their take-home pay
- Want to achieve greater control and autonomy over their career, finances and taxes
- Earn or will earn more than £500 per week or £25,000 per year
Bluebird’s limited company accountancy service includes:
- Free set up and company formation
- Use of Registered Address
- Registration for taxes including PAYE, VAT and Corporation Tax
- Access to FreeAgent, the UK’s leading accountancy software
- Annual statutory accounts completed within 3 months
- Completion of Confirmation Statement
- Quarterly VAT Returns
- Director’s basic Personal Tax Return
- No fees to switch to umbrella, should you require it
- No leaving fees
You can view our full accountancy package and all of its offerings by clicking here.
Sometimes an umbrella company is the better payroll option for you. We recommend umbrella for contractors who:
- Don’t want to deal with any administration, and prefer a hands-free approach to getting paid
- Expect to contract for the short-term before returning to permanent employment
- Are caught by IR35
- Earn or will earn less than £500 per week or £25,000 per year
If you aren’t sure whether you should choose limited or umbrella, we can help. We have experts on hand who can help you understand your accountancy and payroll options, and even discuss which might be best for you. Please call us on 0808 301 2389 or request a call back to discuss your options for free.
Through our sister company we can offer you:
- Free umbrella company set up in less than 24 hours
- PAYE tax and National Insurance contributions taken care of
- Statutory employment rights such as sick pay, maternity/paternity pay and holiday pay
- No fees to switch to limited company accountancy, should you require it
- No tie-in and no close down fees
Get in touch with us if you would like to discuss umbrella company options.