Paying too much through an umbrella company?

Google reviews
March 22, 2016

Type ‘Umbrella Company’ into Google and you‘ll come across an array of outrageous claims, 90% take home after tax probably the most popular line put forward. In reality most umbrellas won’t get close to that – unless they’re breaking the law (tax avoidance) – and in contrast you’ll probably see higher bills thanks to their poor PAYE tax efficiency.

For instance, as an umbrella contractor you’ll still be forced to pay:

Not only that, you’ll also face the umbrella company’s fees. These can range from the costs of processing your timesheets to set fees for joining/exiting the scheme, as well as the cost of an insurance policy – typically a blanket policy imposed on all employees.

Add all the costs up, and you’ll probably take home closer to 60-65% of your earnings. In contrast, by setting up a limited company you could be taking home 75% to 80% of your pay.

Sound appealing? Then read on for a brief run through of what going limited involves…

Firstly, what is a limited company?

A limited company is a legal structure through which many businesses choose to run their affairs. We’re a limited company, as are millions of other businesses – right from tiny firms to treble digit employers – as it’s a structure that brings a number of important benefits. These include but aren’t limited to…

  • Kinder tax rates
  • Greater ability to claim tax relief
  • Limited liability

As a contractor then, going limited makes total sense. However, you’ll need to bear in mind that life as a limited company brings certain legal responsibilities…

The limited company legalities

Prior to making the switch it’s important to know what going limited involves, as by forming a limited company you’ll be legally obliged to do a little more paperwork. By law you’ll need to:

  • Submit annual accounts
  • Submit an annual return
  • Submit a corporation tax and personal tax return

Should you keep on top of your books this needn’t be too much of a concern though, plus you can always outsource these jobs to an accountant if needs be.

Making the switch

Forming a limited company isn’t too much hassle, and you can be trading as one within a day or so. Aside from a little creative thinking (you’ll need to choose a company name…) you’ll need to do some legal legwork to ensure that you’re set up correctly.

As with anything involving tax and law it can appear a bit daunting first, however, a good accountant can dot the i’s and cross the t’s for you – our incorporation package is currently FREE if you sing up to one of our monthly packages! All in all we don’t think that’s a bad deal, given the cost of some umbrella companies!

Umbrella company contractor unsure about your next step? We’re on hand to help on 0161 669 4221 or

Umbrella sign icon. Rain protection symbol.


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