New to contracting?
Umbrella or limited company:
Which is right for you?
There are many great reasons to become a contractor, yet there is a lot of information to absorb. Let us help by providing all the relevant information gathered over years of experience.
I’ve set up a limited company, can I switch to an umbrella?
As a contractor you’re able to switch between payment options, however there are things to consider when deciding between an umbrella company and a limited company.
Read more about the differences between an Umbrella and Limited Company here.
Are there any reasons why I can’t use a limited company for my contracting?
If you don’t work on a government contract then there are no reasons why you can’t operate and invoice out of your own limited company. The off-payroll rules that came into force in the public sector in 2017 led to many government departments and agencies stopping contractors from using their own limited companies. This has meant that umbrella companies have become the norm for those working on government contracts. It was announced in the 2018 Autumn Budget that the same rules will be enforced in the private sector in 2020. Due to the Covid-19 Pandemic, the introduction of these rules has been delayed until April 2021.
I understand that as a contractor I can claim expenses to offset tax?
Whereas umbrella companies were previously able to allow contractors to claim many expenses in addition to travel and subsistence, this is no longer the case. Expenses can still be paid – but these must be approved by your recruitment agency and paid over in addition to your normal daily or hourly pay rate. If your contract is caught by IR35 in the public sector, you will no longer be entitled to the 5% allowance if you’re working via a limited company – this will also be the case in the private sector from April 2021.
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