Thinking of contracting or freelancing? Which trading model is right for you?

Limited, Umbrella or Sole Trader?

Are you thinking about making the move away from permanent employment to set up as a contractor? Sole Trader, an Umbrella or Limited Company? What’s the difference and which is best for you?

Read this blog to get to know your choices, then download our comprehensive guide to help you weigh up:

  • the things you need to consider
  • your options
  • the associated advantages and disadvantages
  • next steps.

Or give us a call on 01202 375 491 to chat through your options.


Why bother?

With the country’s top contractors reportedly earning around three times the average UK wage, why aren’t all permanent staff taking the leap into contracting? One reason may be the confusion surrounding available options. Our following example shows you how the options can affect a professional who is considering leaving permanent employment, and how certain factors can determine what is the right path for him to take.


Meet Peter

Peter works in IT and has been a permanent employee for 15 years. A few of his friends have recently told him about the benefits of moving away from permanent employment, and naturally Peter is curious, but unsure of his options. A friend advises him that he needs to establish if he should be a freelancer or contractor and how he will operate: as a Sole Trader; under an Umbrella; or as a Limited Company. These decisions are important, as they will have an effect on how he will pay the relevant tax due to HMRC in the future. What is right for Peter’s friend may not be right for Peter’s personal circumstances so he needs to make sure he is clear on what his options are.

So let’s take a look at each, and which solution will work best for Peter:

Freelancer or contractor?


While researching the marketplace, Peter finds a number of ad hoc jobs which are task-specific, and would not be extended once the work has been completed. For a number of these jobs he could complete them either in the client’s workplace, or from his home office. He could take on as many jobs as he likes from numerous clients, simultaneously, charging an hourly rate.

In this instance Peter would be a freelancer – an option popular among consultants, creatives and journalists.


Peter continues researching the market and finds work with a third party employer, whom he will work for exclusively for a fixed period of time. He will be paid a daily rate, and travel to the office each day to work a set number of hours. The contract can end or be extended at any point, and Peter could expect to earn approximately £600 per day.

As Peter will solely be working for this one client for the duration of the contract, he would be considered to be a contractor.

As Peter works in IT, being a contractor is a more viable option for him.

Now Peter has established what type of worker he is, he needs to select the right trading model for his situation.

Sole Trader vs Umbrella vs Limited Company

Peter now needs to decide how he is going to operate: as a Sole Trader; under an Umbrella; or as a Limited Company. These are the three most popular options for for knowledge-based, highly skilled workers earning well above the National Minimum Wage but are dependent on what solution suits an individual best, their daily rate and how they wish to operate:

Sole Trader: is a person who wishes to be the exclusive owner of the business, and is therefore entitled to keep all profits, after tax. A freelancer traditionally would consider themselves to be a Sole Trader, or self-employed. They are also liable for all losses so if the contracting business gets into financial trouble, the Sole Trader is personally liable and their private assets could be at risk. It is unlikely that an agency would take him on this basis and very few clients would allow this model so it is therefore impractical. For this reason being a Sole Trader isn’t the best option for Peter.

Umbrella: is a company which acts, for a fee, as an employer for a contractor who will have an agreed fixed-term contract. Traditionally contractors earning less than £30,000pa or who are new to contracting and are just dipping their toe in the water to see if it is the right option for them, are recommended to consider using an Umbrella company. Intouch do not offer Umbrella services, so we suggest carefully researching compliant companies offering this service and choosing one based on your personal preferences and requirements.

If Peter was earning less than the £30,000pa (on average £125 per day) or didn’t want the added responsibilities which come with running a Limited Company, then an Umbrella company solution would be best for him. He should also consider working under an Umbrella if contracting is just a short-term option for him and he doesn’t anticipate it lasting for more that 6-9 months in total.  But, as Peter is in this for the long-haul and charges a higher daily rate, he is confident he can run his own company.

Limited Company: is for a contractor or freelancer who is earning on average over £30,000pa. This is just a guide and setting up as a Limited Company can also potentially benefit those expecting to earn less than £20,000 in some cases, so if this applies check with a professional contractor accountant to ensure you get the best advice and choose the right option for you.

A Limited Company ultimately allows a contractor to take the highest rate of take-home pay and be your own boss, but there are a number of considerations and responsibilities which must first be explored, and subsequently be adhered to. Engaging the services of a reputable contractor accountant means that they should guide Peter from the offset so he is fully aware of his responsibilities and obligations. The added benefit is that often the tax savings realised with the advice of a contractor accountant out-weigh the costs as professional fees are tax deductible and, of course, Umbrella companies also charge a fee or percentage for their services (which is often more expensive). If, as expected,  Peter will earn £600 a day as a contractor, and is comfortable with the responsibilities, then he would be better suited to set up his own Limited Company. Using our free take home pay calculator Peter can compare take home pay based on several stated assumptions. He can input his personal contract income and contractor expenses to instantly see the difference being Limited makes.

There are other things to consider, from creating a company name and formation, to setting up a business bank account but working with a specialist contractor accountant such as Intouch Accounting means a lot of that is taken care of as part of our fixed monthly fee.

So once Peter has made his mind up about which solution works best for him and how he will operate, he is ready to make the move!

What’s next for you?

To help you think through your options we have written a new guide for contractors and freelancers: Limited Company, Umbrella, or Sole Trader – which is the right choice for you? available for you to download now.

Or contact us for a no obligation discussion to work through your options.

Intouch can help you

If the prospect of going contracting is still daunting and you are not sure where to go from here, or just need a chat with one of our experts, give us a call on 01202 375491  and we will happily discuss your situation and options with you. We are renowned with our existing clients for our dedicated service and account management, and we’re happy to take your call and assist you on this exciting new venture!

Call 01202 375 491


Download our guide


This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

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Dispatches: Low Pay Britain

Dispatches: Low Pay Britain

Last night Channel 4’s Dispatches investigated the reality of employment for many in modern Britain and how some big name brands utilise complex schemes to save hundreds of pounds on their wage bill. Intouch Accounting’s Managing Director, Paul Gough, watched the programme with interest to see what the future looks like for Low Pay Britain…

30 years ago it was commercially acceptable and almost socially acceptable to mitigate your personal or corporate tax liability based upon what an accountant might call tax planning. Tax planning in this context is a legal means of putting your business or employment affairs in good order in a manner which reduces your tax liability. (Lord Clyde agreed)

“No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue”

Lord Clyde, 1929

In the past planning was an acceptable way to arrange your affairs in such a manner that reduced taxes so long as the loser was perceived to be HMRC and if, by a little imagination, you could derive a legal tax advantage, then good for you. Not so any more.

In 2015 Britain if a person or corporation arranges his affairs with the effect of reducing the amount of taxation payable by them, to the detriment of another (worker or supplier) then that is now deemed by HMRC and many other taxpayers as morally corrupt. In times of austerity the public needs the tax.

Dispatches correctly highlighted that the lower paid and vulnerable workers often do not understand the differences between being an agency employee or an Umbrella worker or even the full implications of being self-employed. These workers do need and should get protection from their unions, the GLA and HM Government and it’s politically and morally right to level the playing field making sure we all pay our fair share of taxation in order that we can protect our hospitals and roads and education. But how do you do it?

The programme’s use of the Only Fools and Horses theme tune and in using vocabulary like: corrupt, dodgy, tax avoidance and tax evasion present the case  that arrangements or structures designed to reduce tax payable to the Treasury are no longer acceptable means of keeping more in your pocket. Increasingly such avoiders are being seen as not making a fair and equitable contribution to the nation’s coffers and that is not the British way.

Who are the losers?

The losers are all of us. We work hard and pay our taxes and yet abuse of the low paid is allowed to continue in the largely unregulated temporary employment sector. From the political expediency of Job Centres pushing unsuitable workers into self-employment to end-hirers wanting to share costs reductions with agencies and Umbrellas who are willing to facilitate aggressive tax schemes to reduce the tax take.

The problem is that I and I expect you, do not know where the line is between normal business and personal objectives which use commercial good sense to reduce costs (of which taxation is one) and unlawful “wriggling” to the outside of tax legislation to remove or reduce a tax burden that would in part be used to pay for the things we all expect to have like a functioning NHS.

We understand legal boundaries and the need for protection of the vulnerable, but more and more the arguments being put forward are that it’s not fair, or the playing field is tilted, or the Nation needs more tax so dig deep.

I think abuse and exploitation are legitimate targets for anti-abuse legislation and punishment however care is needed in targeting only the guilty, for there a many organisations providing stimulus and jobs in the UK temporary worker, freelancer and contractor sector that do not deserve to be called guilty, even if the way they operate enables their independent Umbrella workers, the genuinely self-employed and those with personal service companies to utilise tax allowances, incentives and reliefs which only exist because they were created by the Government ! Let’s keep the debate about legality and not about morality.

Do you work for an Umbrella? Read our Travel and Subsistence: It’s robbery blog to find out what HMRC’s current review of T&S claims might mean for you.

 Time to switch to Limited? Contact us to discuss your options.


This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Labour denies tax avoidance focus on Umbrella companies

Labour denies tax avoidance focus on umbrella companies

Ed Milliband announced at the Labour party conference this year that if elected into power it would create a £2.5 billion NHS Time to Care Fund to salvage the National Health Service. Explaining where the money for this would come from he outlined that £1.2 billion would be generated with a new Mansion Tax on properties worth over £2 million; £150 million would come from a levy on the tobacco industry and £1.1 billion would be raised by quashing tax avoidance activities.

Are Umbrella companies a tax avoidance target?

One widespread rumour has emerged that one of the tax avoidance targets would be Umbrella companies. The suggestion is that the focus would be to prevent Umbrella companies being used as a way of avoiding tax and National Insurance contributions through exploitation of rules on travel and subsistence expenses and other ‘salary sacrifice’ arrangements. Some commentators suggest that if this happened it would put many Umbrella companies out of business. As this scenario would severely affect contractors who use these companies, this would be a huge blow to the sector.

The Labour party claims that as Milliband did not actually mention this point at the conference this rumour is just speculation. With this rebuttal it’s impossible to say whether this is an option that’s been the subject of discussion in private. It’s interesting though that such a specific rumour should have emerged. Umbrella companies have already been un-settled in recent times by changes to managed services company legislation as well as to the agency workers regulations. Both the Umbrella companies themselves and the contractors who use them would surely prefer a period of stability and certainty, rather than concerns that there may be more upheaval to come.

More support for the self-employed

Milliband told the conference that Labour stands firm in its intention to give more support to the self employed. As the number of self-employed has now reached 4.6 million and their contribution to the economy increases, the collective voice of this group is gaining strength. He labelled the current rights of the self-employed as 21st century discrimination and promised to level the playing field towards equal rights. Support and allowances would be given in areas such as obtaining mortgages and saving for pensions. Of course, any increase in support to the self-employed would be welcome news for Limited Company contractors.

As you will no doubt have noticed, currently all political parties are announcing their strategies ahead of the May 2015 general election. This gives a lot of food for thought for contractors regarding both their business and personal finances. As we all know, things can change a great deal in a few months. For now it’s a case of keeping a watching brief on points of business and personal interest to see what develops.


This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Umbrella to Limited Company

Umbrella to Limited Company

Paul Gough, Managing Director of Intouch Accounting, the personal online accounting adviser for contractors and freelancers, discusses the benefits of moving from an Umbrella to a Limited Company and explains why he believes Limited is best.

Making the decision to become a contractor or freelancer is one of the most exciting and possibly rewarding decisions of your career. At first, you were perhaps not really sure if contracting was right for you; or if, indeed, whether you would actually enjoy not being an employee anymore.

You were probably asking yourself all the natural questions that anyone in your position would be asking – Are you suited to contracting? Will your skills and experience be in demand? Can you get decent contracts to make it all worthwhile?

With all these questions and plenty still to be tried and tested, you made the sensible decision to avoid initial long term commitments and selected an Umbrella solution, to tide you over while you were finding your independent feet and taking those first steps on your new career path.

But, a few months have passed and you’re now happy with your decision to become more self-reliant. You’re also becoming increasingly aware of the alternatives available to you. Your confidence is growing and you’ve realised that, as a highly professional individual, serious about being self-employed, you can now maximise the financial benefits, with the flexibility of running your own business.

If this sounds like you, an Umbrella will feel more and more like a “stepping stone” or a compromise that no longer best fits your circumstances or your needs.

The question of self-employment is a serious one. But, with the right professional support, it should not be difficult to assess. If you understand the rules and the practicalities of day to day working life, becoming a contractor should be quite straight forward.

There are plenty of experienced accounting providers out there capable of providing a balanced opinion, and who will show you why contracting is not some form of black art.

It is a common misconception that running your own Limited Company business is much more different or onerous than the alternatives. Or that Umbrella companies offer anything near the financial benefits of being in business with your own Limited Company.

Actually, in my experience, many Umbrella providers go out of their way to disguise the true picture of the financial benefits of running your own independent business.

A big statement to make; but don’t you ever wonder why Umbrellas are not forthcoming with comparisons? Or why so many actually provide the Limited Company solutions via an associated business they initially discounted as inappropriate for you?

Just by way of a very simple comparison between an Umbrella company and your own Limited business, based on a few assumptions*, this table clearly shows that, at different earnings level, there is a significant financial benefit that is not being made available to you.

These figures illustrate your take home pay based upon varying levels of income, under each alternative:

Income 30,000 50,000 75,000 100,000
Umbrella 20,315 32,113 44,855 57,596
Own Limited Company 24,552 40,352 55,922 71,492
Basic difference 4,237 8,239 11,067 13,896

Based on a flat rate VAT percentage of 13.5% (14.5% less 1% discount in the first year of VAT registration)   


  • Accountancy fees and Umbrella fees are the same at £900 a year;
  • Expense claims are the same and so can be ignored;
  • You are genuinely self-employed.

So, why don’t Umbrellas tell you about this? It’s simple … unlike a good accountant who explains your choices and tells you what is right for you, the Umbrella’s model is about being paid for what they do.

The Agency Workers Regulations (AWR), which came into force on 1 October 2011 – entitling temporary workers to pay and conditions equal to that of permanent staff after 12 weeks’ work – are, at best, only going to sustain the differential; at worst, Umbrella workers will generally experience a further reduction in their take home pay.

The fundamental difference remains that the financial and tax benefits of being Limited far outweigh the perceived benefits of paid holidays. Sick pay is, nowadays, mostly at statutory levels and, for that reason, marginal.

Insurance products tailored specifically to contractors can remove the risk of illness preventing you from working and can be much more attractive than an employer’s sick pay arrangement. The employment law protections against losing your job do exist, but can often be more procedural than real – and most of us recognise that redundancies happen when it suits the employer!

So, as a serious contractor, now is the time to look at how you operate and how you provide your professional skills. Make sure you choose the best and most rewarding model that matches your medium and long term objectives, and maximise your take home pay.

Being Limited really does make perfect sense!


This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.