Umbrella vs Limited companies: How to make the right choice

Unsure whether you should operate through an umbrella company or set up your own limited (Ltd) company?

As a contractor, regardless of whether you’re new to that way of working or a seasoned professional, it can feel overwhelming to determine the right route for you.

This is why it’s best to consult the experts when it comes to weighing up the pros and cons of an umbrella company vs limited company.

The experienced team of advisors at Umbrella Tracker can explain the difference between these two, helping you to make an informed choice that suits your personal and professional circumstances.

Umbrella company vs limited company: Which is the best option for me?

Before we explore the various benefits of a limited company vs umbrella company, it’s important to understand how each operates.

An umbrella company employs contractors and handles the administrative and payroll parts of their fixed-term contracts.

Limited companies are businesses set up by a contractor but are legally separate – unlike a sole trader, for example, who isn’t legally independent and is responsible for all liabilities.

Now you know the difference between two ways you can work as a contractor, we can help you to weigh up the benefits of a ltd company vs umbrella company and determine which is the most appropriate option for you.

Pros of using an umbrella company

Access to employment rights and benefits

With an umbrella company, you’ll be considered a permanent UK employee, so you’ll have access to statutory employment rights (related to pay, discrimination, and health and safety). In some cases, you may even be offered access to medical health plans, insurance, pension schemes, and discounts.

However, if you’re a limited company contractor and you decide to go on holiday or take a leave of absence from your work, you aren’t entitled to the same benefits.

Tax, NICs, and salary administration handled for you

As an umbrella company will become your employer, it takes care of all the time-consuming administration for you.

This includes ensuring you’re being paid properly and on time through PAYE (Pay As You Earn) and the necessary income tax and national insurance (NI) deductions are made.

Conversely, if you become a company director, you’ll need to handle these administration duties and meet various statutory and financial obligations. For example, you’ll need to meet HMRC tax deadlines and submit annual accounts.

No need to worry about IR35

If you choose to work through an umbrella company, then you won’t need to worry about complex IR35 rules because this will all be handled on your behalf.

Becoming a contractor for your own limited company, however, is different to being a regular employee, so you’ll need to ensure you understand off-payroll working rules and are paying the correct amount of tax to avoid penalties.

Free advice and support

As an employee of your chosen umbrella company, you’ll have someone to contact if concerns arise regarding your employment rights or contract.

An umbrella company can act on your behalf to help resolve issues with a recruitment agency or end client.

This contrasts with limited company contractors who will typically need to seek independent advice from accountants or legal professionals.

Easy to end your employment

If you decide to explore career opportunities elsewhere, then ending your employment with an umbrella company is straightforward.

You can also switch umbrella companies by simply letting your current umbrella company know and requesting your P45.

Limited companies, on the other hand, must be properly closed in the eyes of the law which involves meeting certain requirements and applying to Companies House to have the business struck off its register.

Pros of using a limited company

Potentially more cost-effective

Concerned about tax and fees?

By incorporating your own limited company, you could enjoy greater tax efficiency and planning opportunities, while saving money that might otherwise be spent on umbrella company fees and being able to extract profit.

This can make setting up your own limited company more cost-effective compared to working for an umbrella company where your whole salary is also taxed via PAYE.

Provides growth opportunities

Once you set up a limited company, you’re in control of how that business grows and develops.

Over time, you could create a profitable business with shareholders, investors, and more employees.

You can then use succession planning to determine your ongoing level of involvement with the business in the future.

Give Umbrella Tracker a call today

Need help exploring your options before you make a decision?

At Umbrella Tracker, we provide a UK comparison service that allows you to explore thousands of handpicked umbrella companies.

For your peace of mind and reassurance, each umbrella company that you can compare using our service has been approved and fully vetted by our conscientious team.

Whether you’re interested in working in the IT, healthcare, or social work industry, we can help you to determine the best umbrella companies for you with our completely free, tailored, and unbiased guidance.

To find out more about umbrella company v limited company benefits or our umbrella company comparison service, please feel free to contact our helpful team today by simply giving us a call on 0203 026 3303.

More advice on Umbrella Companies

What is an Umbrella Company?

Umbrella Company Fees

Umbrella Company vs PAYE

How to choose an Umbrella Company

IR35 and Umbrella Companies



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