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Umbrella vs Limited: The drawbacks

23/08/18 | Advice & Guidance, Business, Limited Company

In our last blog we had a quick look into the benefits of working under an umbrella scheme vs as a limited company. And I’m sure you’ll remember that the limited company model was the most tax efficient – most of the time. So why would you go for any other option? Well we will have a look at some of the drawbacks of each option – giving you all the details you need to make your choice.


Limitations of limited companies

If you decide to go limited, you’re going to be the company director. With your new-found title you’ll have new responsibilities too: you have to register your company with Companies House, you’re going to have to file yearly accounts with Companies House, run the company ‘solvently and responsibly’ (be able to pay your bills), make sure you don’t miss tax deadlines and keep on top of your IR35 reviews (click here for more info). This is on top of doing all your regular work.

So as you can see there’s a lot of admin and responsibility that comes with the more tax efficient model. There are ways to simplify, such as hiring a ‘Sidekick’ to do all of this for you.


Umbrella – the drawbacks

Ultimately an Umbrella scheme is generally less tax efficient than a limited company setup – which means less take home pay for you. There can sometimes be delays to your pay because there is another link in the chain (the agency being paid before they pay you), contracts outside of IR35 are subject to much higher tax than a limited company and you have much less decision-making power compared to having your own limited company.


Your business, your choice

So, you see it’s not as simple as one model being the highest earner and therefore the right choice for everyone. Some of you may value the hassle-free approach of the Umbrella scheme while others may choose to go it alone as a limited company. Contact us now to see how we can offer you the tax efficiency of a limited company and the simplicity of an umbrella scheme.


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