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

Everything contractors need to know about Umbrella vs. Limited


Limited Company vs. Umbrella: What’s the difference?

Let’s first look at what an umbrella company is.

Operating through an umbrella company is often considered the easiest, most hassle-free way of contracting.

The umbrella company employs the contractor, however, they still maintain the freedom to choose which contracts they work on, when and with which clients.

As the contractors’ employee, the umbrella company will pay the contractor a salary, work out and deduct their tax through the pay-as-you-earn (PAYE) system, process their invoices and give them statutory benefits, including holiday pay, sick pay, maternity/paternity leave and a workplace pension.

In exchange, the contractor pays the umbrella company a fee. 

Although this is an extra cost to contractors, it is worth considering that the umbrella company fee is considered a legitimate expense by HMRC and therefore can be deducted from your salary before it is processed through PAYE.

The second option is to operate through a limited company.

With this route, rather than being an employee, the contractor operates on a self-employed basis, usually through their own limited company.

As a self-employed, off-payroll worker, the limited company contractor will instead be required to file for self-assessment and pay tax after they have received their fee from the client, rather than paying as they earn like an umbrella contractor.

Self-assessment can often be tricky and complex, so many limited company contractors instead opt to use the services of an accountant to help with calculations. It is worth bearing in mind that this is an additional cost to the contractor.

Limited company contractors must also ensure they have enough money to cover their tax bill at the end of the year, keeping a portion of their earnings aside for this which requires careful planning.

Furthermore, a limited company contractor also takes on the responsibilities of setting up and running a business, taking on all tasks associated with this, such as admin, paperwork and invoicing which can take up a lot of a contractor’s time and energy.

Another factor to consider is that self-employed contractors aren’t entitled to statutory benefits like umbrella company contractors are. This means that if they should unexpectedly fall ill, or even just want to take a break, they will have to cover the costs of doing so themselves.

The final factor to account for when deciding between limited company vs umbrella is IR35.

IR35 is a piece of legislation that was set-up to stop workers such as contractors from operating as employees but taking advantage of the tax and National Insurance benefits enjoyed by the self-employed.

Recent changes to IR35 have made it the responsibility of the client in the private sector, and not the contractor, to deduct the contractor’s tax and National Insurance contributions before they are paid their fee.

This will lead to thousands of contractors being wrongly classified under the legislation, meaning they will pay more in PAYE tax contributions than they need, without benefiting from the perks of employment.

This is a major drawback of the limited company option and has meant that thousands of limited company contractors operating within the private sector are now looking to make the move to umbrella.

Making the move to umbrella: everything you need to know

If you are now considering making the move to umbrella, there are several factors you must account for when choosing which umbrella company to work with, including:

  • Service level: every contractor has a different set of needs and requirements, meaning it’s important to look at what services different companies offer in order to find the best fit for you.
  • Take-home pay: contractors work hard so inevitably, take home pay will have an impact on which umbrella company you opt to use. That’s why we make it easy for contractors to compare umbrella companies based on take-home pay, offering a clear breakdown of how much you will pay in tax, National Insurance, pension contributions and umbrella fees.
  • Umbrella fees: likewise, it’s important to look at how much you will pay in umbrella company fees, to ensure you are getting a fair deal. Again, our umbrella calculator makes it quick and easy to compare companies based on how much they charge in fees and what the contractor will receive in return for the fee.
  • Reputation: it’s important that you do your research to ensure the umbrella company you are choosing has a sound reputation and is trust Although the majority of umbrella companies are, just as in any industry, there are those that aren’t. That’s why we only ever work with umbrella companies we know we can trust, so you can rest assured that you are making the right decision.

Ready to find the best umbrella company? Umbrella Supermarket’s umbrella calculator is here to help

If you are looking to make the move to umbrella in 2021, our quick and easy to use umbrella calculator can help you compare umbrella companies so you can find the best umbrella company for you.

We’ve helped thousands of contractors find the perfect umbrella company for their needs and requirements, whatever they are looking for, whether it’s help with things like childcare credits or same day payments, we can help you find it in a matter of minutes.

Simply start by entering a few key details and we will do the rest. Ready to find the best umbrella company for you?

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Decision Making

Is PAYE Better Than Umbrella?

If you are considering contracting you will need to decide on PAYE or umbrella.

It can be a difficult decision to make and contractors will inevitably be questioning which option will be the best for them.

To help every contractor get on the right track for them, in this guide Umbrella Supermarket looks at PAYE vs umbrella, outlining the key differences and how this will impact you.

using an umbrella company

Why Should Contractors use an Umbrella Company?

There are many reasons that contractors across the UK opt to work under an umbrella company.

Umbrella companies offer an easy way to contract and remove the need for the contractors to worry about the burdens of admin, finances, tax and IR35, all things that limited company contractors have to deal with.

For this reason, many contractors will be weighing up their options and questioning whether it is worth using an umbrella company in 2021. To help make the decision that little bit easier, Umbrella Supermarket has put together this guide on the pros and cons of using an umbrella company.


umbrella company fees

Does an Umbrella Company Charge Fees?

Any contractor that is considering operating through an umbrella company in 2021 will need to understand Umbrella Company fees - from why an umbrella company charges fees, how they are paid to how much the contractor will pay.

In this guide, Umbrella Supermarket answers those all-important questions to help every contractor know exactly where they stand when it comes to umbrella company fees.


What makes a good umbrella company

What Makes a Good Umbrella Company?

If you’ve made the decision to contract through an umbrella company in 2021, you will next need to find an umbrella company that’s right for you.

After all, there are lots of umbrella companies out there, so how do you know which one to choose?

To help you find the best umbrella company for you, in this guide Umbrella Supermarket outlines what makes a good umbrella company, so you can rest assured you’re making the right move.

umbrella company pensions

Guide to Umbrella Company Pensions

One of the many advantages to operating through an umbrella company for contractors is that they become an employee of their chosen provider.

In turn, this means that the contractor will be automatically enrolled onto the umbrella company’s workplace pension scheme.

To help contractors find out more about umbrella company pensions Umbrella Supermarket has put together this handy guide.


using an umbrella company

Beginner’s Guide to Using an Umbrella Company

If you are considering contracting through an umbrella company you will naturally have questions and queries over how they work.

After all, making the move to umbrella can be a big step for contractors. To help, in this guide Umbrella Supermarket explains how to get started with an umbrella company and share our top tips for using one in 2021.


PAYE and Umbrella

Guide to PAYE vs. Umbrella

PAYE or umbrella is a question asked by every contractor. Which one you opt for will have a big impact on your contracting career and lifestyle. So, it's important to make the right decision for you.

To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.

Holiday Pay for Umbrella Contractors

Complete Guide to Holiday Pay for Umbrella Contractors

One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.

To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.

umbrella company

When Shouldn’t You Use an Umbrella Company?

Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.

One way that contractors can work is through an umbrella company.

Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?

To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.


The truth about HMRC approved Umbrella Companies

There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.

After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.

However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.

To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.

umbrella company costs

How Much are Umbrella Company Costs?

If you're considering making the leap to contracting, you will understandably want to know how much you will have to pay in umbrella company costs. After all, this amount comes directly out of the contractor’s pocket, so it’s important to be clued up on how much you should expect to pay.

To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.