PAYE Or Limited Company – Which is Right for You?

Choosing the right trading structure for your business.

Umbrella Company or Limited Company?

Following the introduction of the IR35 legislation, there are now only two real options open to contractors, so let’s have a look at each option in more detail.

If you're in a hurry, simply complete the ‘Quick Comparison’ form opposite to receive a ‘no-obligation’ income illustration which compares your potential earnings through a Limited Company compared to standard PAYE. Take 2 minutes now and see how much better of you’d be through a Limited Company.

So, the two options available to contractors are as follows:

Option 1 - Umbrella Company / PAYE (Payroll service)

An umbrella company is essentially an invoicing vehicle for contractors who want to avoid the administration duties normally associated with contracting, namely issuing invoices, chasing payments from clients / agencies, calculating tax and national insurance (NI) contributions and making payments to their bank account. It’s worth noting that because you are employed by the umbrella company, IR35 legislation does not apply.

Contractors who work through an umbrella service will submit timesheets and expenses (normally online) and then leave the rest up to the umbrella company. They will generate and send an invoice to the agency or client, chase payment when it’s due and then upon receipt of payment will calculate your tax and N.I and transfer your net pay direct to your bank account.

Naturally, there is a fee for providing an umbrella service which can vary hugely between different companies (but normally around £120 + VAT per month).

For new contractors the umbrella company is often an appealing option, as it provides a simple way to decide if contracting is for you.