Umbrella VS Limited

What is Umbrella Employment

An umbrella company acts as an intermediary between you and your clients to simplify your financial admin. You are paid as if you were a permanent employee, meaning your tax and National Insurance Contributions (NICs) are deducted for you, so you don't have to worry about filling out a return.

What is Limited Company

A Limited Company is an official business that is registered with the government and Companies House. Registering a limited company in your name means you will be in charge of an organisation that is legally separate from you as an individual.

How does it work?

Umbrella

If you sign up with an umbrella company, you fill out a timesheet for the hours you work and submit this to the umbrella firm, which then handles all your invoicing. The client pays the umbrella company, who then deducts tax and NICs from your earnings before paying you.

Limited

When trading through a limited company, you are responsible for making sure you get paid and are paying the correct amount of tax. You raise an invoice to your client who then pays your company directly.

Suitability

Umbrella

• Earn £15 per hour or less
• Are on shorter-term contracts (Less than 6 Months)
• Don’t want the hassle of paperwork
• Still want employee benefits: sick pay, maternity/paternity leave, holiday or redundancy pay

Limited

• Earn more than £15 per hour
• Plan to be contracting for more than 6 months
• Happy to do more company admin
• Incur a lot of expenses

Responsibility – Paperwork/Admin

Umbrella

Umbrella Companies organise and process the paperwork on your behalf, so you are responsible for a lot less admin compared to a Limited Company. You simply need to submit your timesheets online with your Umbrella Company.

Limited

Running your own business isn’t difficult as some make out, however working via a Limited Company does come with more responsibilities. You are responsible for keeping accurate accounting records and submitting this on time alongside a tax return each year.

How is Tax calculated

Umbrella

Your earnings are paid directly to the Umbrella Company and it is then their duty to ensure the amount of TAX and NI is calculated and deducted on a PAYE basis.

Limited

Your earnings are paid directly into your business bank account where you are then free to choose thee most tax efficient mix of salary and dividends.

Earning Potential

Umbrella

Provides employment benefits but less tax effcient than a limited company:
Estimated Monthly Earnings: £2,878.00
Estimated Earnings Retained: 60%

Limited

Most tax effcient option for contractors – you get more money in your pocket.
Eastimated Monthly earnings: £3,714.00
Estimated Earnings Retained: 83%