Umbrella vs Limited – Which Trading Vehicle is Right for You?

03 October 2019

When embarking on a contractor career, the first big decision you will likely have to make is whether to operate via your own limited company or take the path of using an umbrella company. In this article, we are looking at some of the key factors that could help you decide

Limited company

Working through your own limited company has its obvious advantages, particularly giving you full control over your revenue. You get paid directly into your business bank account without any intermediary involved, and probably most appealing of all, with lower tax responsibilities for contracts outside of the IR35 legislation. You can typically take home around 70-80% of your earnings. The company director controls how much they pay themselves in the form of salary and dividends in combination, and providing the contract falls outside of IR35, several expenses can be claimed.

By going limited, you can:
  • Maximise your income
  • Increase your employability
  • Trade under your own company name
  • Have limited liability

However, the limited solution also has some downsides, such as the amount of administration involved, invoicing and recording transactions while remaining compliant with a plethora of relevant laws. Running a company can take up a fair amount of time, and then there is the responsibility to pay taxes at the right time as well. It is definitely worth looking at our comparison table here as an alternative trading vehicle may be more suited to your circumstances; this is where an umbrella company can help.

Umbrella service

As discussed in our last blog, which explained the ins and outs, the umbrella solution takes the hassle away from the contractor. It’s ideal for short-term contracts, and all roles are inside IR35, so there are no worries on that score. All relevant deductions are made at the source with all the paperwork done for you; all you have to do is submit your time and expenses.

Benefits of being an umbrella employee:
  • Easy and quick set up in just a few hours
  • No admin responsibilities – payroll, invoicing, chasing payments are all taken care of
  • No need to worry about tax deadlines
  • Ideal for short-term contracts

The drawbacks to working through an umbrella start with the fact you are likely to “only” take home around 60-65% of your salary when working with a compliant provider, quite a plunge from the limited option. Through an umbrella, you may feel more restricted regarding how you control your finances, i.e. collecting dividends, and you are also reliant on your umbrella company to quickly and efficiently manage the movement of funds. Additionally, you can no longer claim travel and subsistence expenses if you are deemed to be under SDC (Supervision, Direction and Control) in your role.

SmartWork & MyAccountant

Alongside our umbrella solution, SmartWork’s sister company MyAccountant offers a limited company service. They have over 20 years of experience serving contractors and providing outstanding customer service, so please do not hesitate to contact either team if you have questions on what trading vehicle to choose.

MyAccountant is available at 0800 917 9100, or you can e-mail them at

As always, if you’d like to get in touch with SmartWork, please feel free to call us on 0800 434 6446 or send us an e-mail at For more news and blogs, remember to follow us on LinkedIn and Twitter.