Umbrella Membership vs. Limited Company
Gain the understanding and insight for which company structure is right for you, because you deserve to get the best return on your effort while knowing your accounting and tax is sorted.
The BIG Question
You’ve done the hard part… You have won a contract for yourself and you’re on your way to a more prosperous future. The big question now is:
Trade as a
Limited Company
VS
Work through an
Umbrella Company
Your decision will have a huge impact on your personal tax bill so it is important to get it right.
Limited Company
Umbrella Company
Limited Company
Umbrella Company
Pro’s
- Tax efficient structuring opportunities
- Low personal tax costs
- Ability to claim expenses
- Control of cash paid to you by your client/s
- Ability to put other income streams through your limited company
- Instant set-up
- No administration and hassle free
- Receive a net salary
- Fees only apply during your contract period
- May not need to register for a tax self-assessment
- Covered by umbrella company’s insurance policies
- Removes IR35 compliance requirements
Con’s
- Company set up process
- Required to register for self-assessment
- Compliance with HMRC & Companies House
- IR35 considerations and obligations
- Own insurance policies required
- Higher personal tax payments
- No ability to claim expenses
- No tax structuring opportunities
Limited Company Pro’s
- Tax efficient structuring opportunities
- Low personal tax costs
- Ability to claim expenses
- Control of cash paid to you by your client/s
- Ability to put other income streams through your limited company
Umbrella Company Pro’s
- Instant set-up
- No administration and hassle free
- Receive a net salary
- Fees only apply during your contract period
- May not need to register for a tax self-assessment
- Covered by umbrella company’s insurance policies
- Removes IR35 compliance requirements
Limited Company Con’s
- Company set up process
- Required to register for self-assessment
- Compliance with HMRC & Companies House
- IR35 considerations and obligations
- Own insurance policies required
Umbrella Company Con’s
- Higher personal tax payments
- No ability to claim expenses
- No tax structuring opportunities
Let Us Help You Make the Best Decision for You
We have gain substantial experience over the years through helping clients, just like you, make the choice about which structure is best for them.
Limited Company | Umbrella Company | |
|---|---|---|
Length of Contract
The longer the duration of your contract the more beneficial a limited company would be. | Contract term of more than 3 months | Contract term of 3 months or less |
Rate of Pay
The higher your rate of pay the more beneficial a limited company would be. | Rate of pay greater than ￡15/hour | Rate of pay equal to or less than ￡15/hour |
IR35 Status
The status of your contract in terms of the current tax legislation which determines if it falls under the the off-payroll rules | If your contract does NOT fall under the current IR35 rules | If your contract DOES fall under the current IR35 rules |
Sources of Income
Flexibility to take on additional contracts with associated incomes streams | One or more income streams at the same time or at different times with the advantage of tax planning opportunities | Single income stream at a time. |
These are all the key decision criteria to empower you to make an informed decision. But sometimes, depending on who you are, it comes down to personal preference. You need to be happy with the structure you choose. Our role is to guide you through the decision making process.
Real World Comparison of
Limited Company vs. Umbrella Company
To give you context on what the difference can be between these two structures, we have put together a real world example
Income | Annual Income | |
|---|---|---|
A contract with a great company | Your contract rate is ￡450 per day | ￡108 000 |
Expenses | Annual Expenses | |
Train Fare | Train fare getting to and from your contract site of ￡250 per month (￡250 x 12m) | ￡3,000 |
Subsistence claim | Food & drinks of ￡5 per day to keep you nourished and energised (￡5 x 5d x 48w) | ￡1,200 |
Mobile telephone | Mobile phone contract cost of ￡40 per month to keep you connected (￡40 x 12m) | ￡480 |
Broadband & office costs | Monthly broadband and office costs of ￡75 to help you do your work (￡75 x 12m) | ￡900 |
Company insurance costs | Mandatory company insurance of ￡40 per month to keep you protected (￡40 x 12m) | ￡480 |
￡6,060 |
Umbrella Company Membership
This is how things would play out with being a member of an umbrella company
Contract Income | ￡108 000 |
|---|---|
Net Take Home Income | ￡64 187 |
Less: Employers National Insurance | ￡12 050 |
Less: Employees National Insurance | ￡5 883 |
Less: PAYE Tax | ￡25 880 |
This ￡64 187 represents 59.43% of your contract value.
Limited Company
Things are a bit different for a Limited Company because you have more tax structuring opportunities. But, to make this a meaningful comparison, we will keep things as similar as possible.
Contract Income | ￡108 000 |
|---|---|
Less: Claimable Expenses | (￡14 692) |
Salary paid to yourself | (￡8 632) |
Company insurance | (￡480) |
Broadband & office | (￡900) |
Mobile telephone | (￡480) |
Train fares | (￡3000) |
Subsistence claims | (￡1200) |
. | |
Profits before Tax | ￡93 308 |
Company Tax (19%) | (￡17 729) |
Distributable Profit | ￡75 579 |
The £75,579 represents the amount that you could pay yourself as a dividend. Let’s presume that you paid all of this out to yourself, the total personal tax that you would pay on this would be £11,266. So your total take home pay would be made up as follows:
Tax Free Salary | ￡8 632 |
|---|---|
Total Take Home Pay | ￡78 525 |
Expenses Reimbursed (excl. Insurances & accounting fees) | ￡5 580 |
Dividends after Tax | ￡64 313 |
This ￡78 525 represents 72.70% of your contract value.
In Summary
So if you are weighing up your decision purely on tax efficiency, a Limited Company will give you a far better tax home.
Umbrella Company
￡64,187
59.43% of contract value
VS
Limited Company
￡78,525
72.70% of contract value
Need Advice
Get in touch with us, we will be happy to discuss your specific situation and advise you on the most appropriate structure for you.
Looking for an Umbrella Company
Our sister company, CRUMB, can offer you the perfect solution for your umbrella company needs.