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Learn about the main structures used by contractors.

All the information you will ever need to decide whether an Umbrella Company or a Limited Company is right for you. This subtitle can also be set to whatever you want for SEO purposes.

There are two main structures used by contractors to both get paid by their agency or client, and in turn pay their taxes:

  • an umbrella company which invoices the clients, pays the contractors less tax and pays the their taxes direct to HMRC.
  • a limited company (which the contractor owns and is a director of) which invoices the clients, and uses an accountant to calculate their payroll. The director pays their own salary and any taxes due to HMRC from the company account. At the end of the financial year, if the contractor receives additional dividends, these must be documented in a personal tax return, with any tax due sent from the contractor’s personal account to HMRC. An accountant would also usually be engaged to do this calculation and submit the form.

For anyone earning under £200 per day, the difference between the disposable income available at the end of each month (after factoring in government benefits) is often the same as via a Ltd Company.

However for those earning above that threshold, a limited company quickly becomes the more financially rewarding option. It’s therefore important for contractors to weigh up the extra time spent and responsibility that comes with operating a limited company over using an umbrella.

Explore Our Resources

Marketing your limited company

Marketing your limited company

There is a wide variety of ways in which a contractor limited company can market itself including a well-written CV, using a recruitment agency, online job boards, LinkedIn, networking, websites, and email marketing. Marketing gets a contractor in to see an interviewer who will eventually award the job. We look at the mindset of an interviewer, phone interviews, what’s expected at face-to-face interviews, and the increasing frequency of Skype interviews.

Company taxation

Company taxation

A contractor limited company pays its own taxes including corporation tax, Employer National Insurance, IS and VAT. There are schemes available from HMRC which allow contractors extra time to pay what they owe when money is tight. In this post we look at the tax burden faced by contractor limited companies.

Ready to take the next step in setting up your structure?