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Umbrella to Limited Company

Posted by: Intouch | 02.11.11

Intouch Accounting

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.