Many people entering the world of contracting do so by setting up their own limited companies. But it’s not the only option, especially for newcomers to the contractor community.

Carefully consider your motives and priorities for becoming a contractor before making up your mind. If managing your own accounts (or outsourcing this task to specialist accountancy firms), chasing overdue invoices personally and taking full company director responsibility for your fledgling enterprise have about as much appeal for you as toothache, umbrella companies may be a much wiser alternative.

This is especially true if you suspect that many of your contracts would be caught by IR35 (if so, you’ll be paying full NIC and PAYE rates on your income, rendering one of the chief attractions of limited company directorship non-existent).

The PAYE umbrella option is especially attractive for those who rate the appeal of choosing a wide range of work environments above the challenges of managing a company. Good umbrella companies handle all aspects of financial administration and make automatic NIC and PAYE deductions to HMRC as you earn. You never have to chase an invoice – the umbrella service takes care of all that.

Moreover, unlike limited companies, there aren’t any start-up (or close-down) overheads to worry about, which can be especially irksome if you only intend to contract for a relatively short period, or if you’re just ‘having a go’ at contracting to see it suits you before making a long-term commitment.

Opting for a PAYE umbrella service doesn’t have to be a permanent arrangement either; it’s always possible to take the limited company route later if the time seems right.

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