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A guide to contracting

Helping you on your contracting journey

Contractors work under two main payroll structures – umbrella companies and limited companies. Both have their benefits and drawbacks, but a contractor’s individual circumstances will usually mean that one offers more advantages over the other. 

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Limted Company

Contracting through a limited company is one of the most tax-efficient methods to be paid for many contractors. Setting up your own limited business might be the most effective option for you to work, whether you're just starting out as a contractor or freelancer or have been working under an umbrella firm for a while. There are a few methods to form a limited business, but hiring a professional contractor accountant can help you avoid some of the administrative hassles and paperwork that come with running one. Discover what a limited company is and why it can be the best contractor payroll solution for you.

PAYE Umbrella

The easiest method to get paid is to use an umbrella corporation. It's easy to join up for an umbrella firm, and once you do so, you become an employee of the umbrella company. There is no need to set up your own firm or deal with any administrative tasks outside submitting timesheets with this payroll option. Taxes, including income tax and national insurance, will be handled by your umbrella payroll provider. You won't have to worry about IR35 regulations when you choose this option. However, umbrella businesses are not the most tax-efficient, and if you have the option to contract through a limited company, you may be able to raise your net pay.

Umbrella Company vs. Limited Company: Pros and Cons Summary

LIMITED
UMBRELLA
Tax Efficiency

The most tax-efficient way to contract. Most directors take a low salary. No National Insurance is payable on dividends and other tax planning options are available.

Your entire salary is taxed via PAYE. Less tax-efficient than working via a limited company.

Ease of set up and use

Company formation can be completed in a few hours, Registration for taxes (VAT, Corporation Tax) can take a few weeks. Monthly admin required to compile accounts, some annual obligations as company director.

Instant set up, very little admin and no legal duties.

IR35 Consideration

Good if you intend to provide services to multiple clients.

Risk of being blanketed. If caught, most tax benefits of being limited are lost.

IR35 is irrelevant, as you are already taxed as an ‘employee’.
Not ideal if you plan to work for several clients at the same time.

Duration

Not ideal for short-term contracts, due to admin required to set up and then subsequently close the company.

Good for short-term contracts.

Low earning contracts

Not generally recommended for contracts paying under £15-20/hour.

Good for lower-paid contracts.

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Many first-time contractors want to know how much money they can take home when choosing a payroll service. Use our take home pay calculator to see how much money you’ll have at the end of the week or month if you work for a limited company rather than an umbrella company.

We are proud of the fact that we have successfully assisted over a thousand clients to far, so you can be certain that you are in good hands as our priorities have always been customer service and compliance. When you speak with our staff, you will receive experienced and personalised guidance to help you get off on the right foot with contracting.

Our services for first-time contractors include:

  • Free consultation to review your situation and requirements.
  • Outline the most suitable payroll option for you
  • Explaining the basics of IR35 legislation and how it affects contractors
  • Full administration support
  • Unlimited tax advice
  • Dedicated team on hand to answer your queries
  • No minimum terms of service
  • 24/7 access to a secure, mobile-responsive portal

Try our take home pay calculator to estimate how much income you can take home at the end of the week or month via a limited company versus an umbrella company.

Income tax calculator

Enter your salary and find out how much income tax and National Insurance you'll pay in the chosen tax year.

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Pay Details

Tax Code 1257L

NI Category Letter A

Gross Income

Gross Pay

Allowance & Pre-Tax Deductions

Personal Allowance

Taxable Income

Gross Income

Allowances & Pre-Tax Deductions

Income Tax

NIC

Take Home Pay

The right choice for you

Changing legislation, as well as the length and value of a contractor’s typical assignments, are just some of the things that need to be taken into consideration when choosing between payroll structures. We have an unbiased overview and many years of experience working with providers of both structures. 

Here is an example of the some of the industries in which we can help working professionals. However we are not limited to these sectors. feel free to get in touch with us and see how we can help.

Construction

Transport & Logistics

Medical Service

Project Management & Admin

Engineering

Finance & Legal

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