Should leave your umbrella company to set up a limited company?

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When should you leave your umbrella and go limited?

Last updated on Thursday, August 3, 2017

Written by Andrew Trodden

Using a PAYE umbrella service is a simple and efficient way to get paid as a self-employed worker. However, the time may come when it is in your best interest to say farewell to your umbrella company and become the director of your own limited company. This article will investigate when you should consider switching from an umbrella service to an umbrella company.

There are many reasons why self-employed workers decide to use a PAYE umbrella company for their payroll, including the minimal associated administration, employee benefits such as Sick Pay and free insurance. However, the time may come when umbrella workers decide to assess their options, including the possibility of starting a limited company. Below are some of the most popular reasons why contractors and freelancers move away from an umbrella company to a limited company contractor accountant. Is it time you considered transferring?

If you are ready to get hands-on with your finances, starting a limited company may be an incredibly exciting prospect. Becoming a director means you will have lots of responsibilities and therefore, you may be thoroughly motivated about the challenge of managing your own finances ahead.

Typically speaking, if you are earning £15 per hour or under, using an umbrella company is the most suitable payroll service if you are looking to maximise your take home pay. This is because you will need to be earning over £15 per hour in order to cover the costs associated with setting up and running your own limited company.

If your rate has recently gone up, now may be the perfect time to move away from your umbrella and start your own business. Whilst using a contractor accountant will cost you a little more on a monthly basis than an umbrella company, their job is to help you plan your finances so that you are noticeably better off than you were before.

Normally, users of umbrella companies tend to work on a variety of short length contracts. If you are looking to secure or have already secured a long term contract, now might be the perfect time to go limited and maximise your pay retention.

A limited company is often perceived as the most professional way to operate in the eyes of employers. Therefore, setting one up may enhance your chances of gaining a long term contract.

Using an umbrella company is an easy way to get paid because you become an employee of their umbrella. Therefore, you receive a PAYE salary with all the appropriate deductions (including tax and National Insurance) made on your behalf. Operating through a limited company, conversely, will provide you with far more freedom to take control of your personal finances. For starters, you will be able to pay yourself with a combination of salary and company dividends – potentially increasing your pay retention depending on your circumstances.

Contractors in the public sector were dealt a significant blow when HMRC changed the legislation affecting off payroll workers in 2017. To summarise, self-employed workers in the public sector working through their own limited company are no longer able to determine their own IR35 status, meaning the responsibility is now that of the end client. Because the end client and potentially the recruitment agency involved in the supply chain could be held responsible for any wrongly assessed workers, many public sector organisations decided to either stop working with limited company contractors, only work with them if they accept they are inside IR35, or demand that they all work through an umbrella company.

If your current assignment is for a public sector organisation and it is coming to an end, you may already intend on going into the private sector for future projects. When setting up a limited company and working within the private sector, you will be able to negotiate your contracts so that they are outside IR35 – allowing you to maximise your take home pay. It is strongly recommended that you consult with an IR35 specialist before accepting a contract and determining your status.

Setting up a limited company may be a fantastic way to achieve your long term goal. Starting off as a one man band is the ideal way to dip your toes in the water of directorship before you look to grow your company and employee additional members of staff. Setting up a limited company will definitely help you familiarise yourself with the documentation and legislation involved in running a business, as well as your duties as the owner and director (e.g. filing accounts to HMRC).

Since the introduction of Supervision, Direction and Control legislation in 2016, claiming expenses through an umbrella company is difficult and limited only to travel and subsistence. When you are the director of your own company, you will be able to claim expenses on costs for some business related items and activities, making it a more attractive option for self-employed workers who regularly purchase goods for their assignments.

Churchill Knight & Associates Ltd is a leading contractor accountant and PAYE umbrella company. Our experts are ready to provide you with a free consultation to discuss your circumstances. When you speak to us, you can be assured the advice you receive is completely impartial.

Best of all, switching from our umbrella service to our contractor accountancy service (and vice versa) is free of charge. Therefore, if you are new to contracting and would like to start your career with the easiest payroll arrangement, give us a call and chat to a team member about joining Churchill Knight Umbrella. Alternatively, if you would like to start your own limited company or are unsure what the best option for you is, we are here to provide trustworthy advice. Please call 01707 871622, or email

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