Pros and Cons of Limited vs. Umbrella

Umbrella vs. Limited: What’s right for you?

What is a Limited Company?

Let’s start by looking at contracting through a limited company.

Here, the contractor is self-employed and must set up their own limited company.

They will be required to find and secure their own contract work, negotiate a fee, hold enough back from what they are paid to cover tax and National Insurance contributions and pay this through self-assessment.

Self-assessment can be tricky and time-consuming, so many limited company contractors opt to use the service of an accountant to help make the task easier. However, it is worth bearing in mind that this is an additional cost to account for.

As well as taking care of their own finances, self-employed contractors are also responsible for setting up and running their own business and must take on all tasks associated with this, from admin, paperwork to invoicing. Again, it is worth considering that this can take up a contractor’s precious time and energy.

Finally, self-employed contractors do not receive statutory rights including sick pay, paid holiday leave, maternity or paternity leave and a workplace pension. This means that the contractor should again budget for this as they will have to cover the costs should they unexpectedly fall ill or wish to take a holiday.

There is also another factor to take into consideration, IR35.

What does IR35 mean for self-employed contractors?

When debating between limited company vs umbrella, another factor to account for is IR35.

IR35 legislation was introduced in 2007 to stop self-employed workers such as contractors from operating as employees but enjoying the tax and National Insurance benefits of being self-employed. In other words, it is designed to stop ‘disguised employees.’

Further reforms were put into action in 2017 which made it the responsibility of the client and not the contractor to determine the contractor’s IR35 status in the public sector.

This meant that thousands of contractors were wrongly classified under the legislation and had to pay more in PAYE tax contributions than they needed to. These contractors were effectively paying tax as employees without receiving any of the benefits an employee would such as statutory rights.

From April 6th 2021, these changes will also be rolled out to the private sector, impacting thousands of private sector self-employed contractors.

This will result in many of these contractors paying more in tax, and can lead to stressful and often expensive IR35 investigations if red flags are raised to HMRC over your IR35 status.

What’s more, many larger clients have said they will stop using the services of limited company contractors altogether to avoid getting caught up in IR35.

Clearly, this is a major drawback of the limited company route and has led many self-employed contractors to consider an alternative route – an umbrella company.

The alternative? Umbrella Company

Umbrella companies are widely considered an easy, hassle-free way of contracting and what’s more, they mean the contractor is completely exempt from IR35, taking away the stress and hassle of getting caught out by the legislation.

An umbrella company will employ the contractor, meaning although they still have the freedom to choose which contracts they work on and when, they also receive employee benefits.

The umbrella company pays the contractor a salary, meaning tax contributions are worked out and deducted on their behalf through the PAYE system, taking away the need for the contractor to undertake any tricky tax calculations themselves.

The umbrella company will also process the contractor’s invoices on their behalf, take care of admin and paperwork and give them statutory benefits. To find out more, check out our handy guide to umbrella sick pay and other statutory rights.

In exchange for these services, the contractor will pay the umbrella company a fee.

This might be an additional cost out of the contractor’s pocket, however it is worth noting that umbrella company fees are deemed a legitimate business expense by HMRC and can therefore be deducted from their salary before it is processed for tax.

Many contractors favour the umbrella company route as an easier way to contract. After all, the umbrella company offers the contractor the freedom and flexibility of being a self-employed contractor coupled with the security and benefits of being an employee.

What’s more, as an employee of the umbrella company, the contractor does not need to worry about getting caught out by IR35 which will be a huge sigh of relief for many.

How can Umbrella Supermarkets umbrella calculator help?

If you have decided that going umbrella is the best way forward for your contracting career in 2021, Umbrella Supermarket are here to help you find the best umbrella company for your needs.

By simply entering a few key details, such as your name, contractor rate and preferences, our umbrella calculator will generate a list of the best-suited umbrella companies for your needs.

We will show you what services and benefits you will receive from each company, how much you will pay in fees to the company, what your take home pay will be, how much you will pay in tax and any additional benefits open to you, so you can see if this is the better option over working through a limited company.

Ready to see what our umbrella calculator can do for you today?

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Using an Umbrella Calculator

The Pros of Using an Umbrella Calculator

There are many advantages to using an umbrella calculator for contractors.

Umbrella calculators allow you to quickly compare thousands of umbrella companies across the UK, offering a clear overview of what you will receive from the company, including everything from your take-home pay, what benefits you will receive, and what services the company will offer.

To help contractors find out more, Umbrella Supermarket outlines the main benefits to using an umbrella calculator in 2021.

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Umbrella vs Limited Company: What to know when making the move this new tax year

The 6th April 2021 marked significant changes to IR35 legislation which impacted thousands of self-employed, limited company contractors operating within the private sector.

In light of the changes that have now rolled out, many limited company contractors are understandably considering their options and thinking about making the move to umbrella this new tax year.

To help make the decision that little bit easier, in this guide Umbrella Supermarket outline what contractors need to know about making the move from limited company to umbrella in 2021, to help you get on the right track.


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Umbrella Company vs PAYE: What should you choose?

Umbrella company vs PAYE is a question asked by thousands of contractors.

After all, it’s a big decision to make that will have a direct impact on your contracting career and day-to-day life, so it’s not one that should be taken lightly.

To help every contractor make the right decision for them, Umbrella Supermarket has put together this insightful guide outlining the key differences between umbrella and PAYE and the advantages and drawbacks of each.

avoid ir35

How can I avoid IR35?

As a contractor, you will most likely know about IR35 and upcoming reforms from April 2021.

These changes to IR35 legislation are set to badly impact many self-employed contractors in the private sector, so thousands are understandably worried. After all, getting caught out by IR35 can mean you end up paying more in tax than you need at the same level as an employee, without receiving the benefits of being employed, such as statutory rights.

umbrella company costs

Umbrella Company Fees: How Much Should You Pay?

When deciding which umbrella company to work with, the fees they charge will inevitably play an important role in the decision-making process.

Umbrella company fees are taken directly out of the contractor’s income, so it is only natural that contractors want to ensure they are getting a fair deal.

To help contractors understand umbrella company fees, from how they are charged, what they will receive in return, and how much they should be paying, Umbrella Supermarket outlines everything there is to know about umbrella fees in this handy guide.

2021 budget

What Does the 2021 Budget Mean for Contractors?

On 3rd March 2021 Chancellor Rishi Sunak unveiled his Budget in the House of Commons, outlining the government’s tax and spending plans for the year ahead.

Sunak announced a variety of measures he will put into place to help businesses and jobs that have suffered through the pandemic, as well as outlining a plan for the long-term recovery of the economy.

However, the question many contractors will be asking is how the Budget will impact the

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5 Benefits to Working with an Umbrella Company

Contracting through an umbrella company has become an increasingly popular option for contractors across the UK in recent years. After all, it is a route that offers contractors a range of benefits over other paths such as working through PAYE or being self-employed.



ir35 reforms

Contractor’s Guide to IR35 in 2021

From April 6th 2021, reforms to IR35 legislation will come into force, impacting the lives of thousands of self-employed contractors.

Inevitably, contractors across the UK are concerned about upcoming reforms and how these will affect them. To help, in this guide, Umbrella Supermarket look at what these changes to IR35 entail and how they might impact you as a contractor in 2021.


compare umbrella company fees

How to Compare Umbrella Company Fees

If you are considering joining an umbrella company in 2021, or have been contracting through one for a while and want to ensure you are getting a good deal, it is important that you know how to compare umbrella company fees.

What you pay in income tax and National Insurance will be the same regardless of which umbrella company you choose, however the fees the umbrella company charges can make a big difference to your take home pay.

At Umbrella Supermarket, we know that every contractor wants to get a fair deal. To help, we explain how umbrella company fees work and how you can compare them to find the best deal.

job retention scheme

Job Retention Scheme for Contractors in 2021

The COVID-19 pandemic has impacted workers across the UK and contractors have been no exception.

Many of the 1.77 million independent contractors have either lost work altogether or have had contracts put temporarily on hold leaving them in a tricky position.

Fortunately, many of these contractors are eligible for the government’s Job Retention Scheme otherwise known as furlough, introduced to offer financial support for businesses and workers. This has been an essential source of income for many who have lost contract work as a result of the pandemic.

As we experience a third national lockdown, the furlough scheme has now been extended until the 30th April. So, if you find yourself out of contract work or have projects on hold, Umbrella Supermarket are here to explain what the Job Retention Scheme is, how it works and what this means for contractors.