Avoiding the Pitfalls of Contracting through an Umbrella or Limited Company

Avoiding the Pitfalls of Contracting through an Umbrella or Limited Company


Julian Parker

For the uninitiated and the seasoned contractor alike, there’s a lot to consider when choosing how to contract. Big upsides and potential pitfalls can await you. Is PAYE, Umbrella or Limited company the right option for you? If Umbrella or Limited is the right route, choosing the right provider is equally important.

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Relatively speaking, the UK has a large flexible workforce at around 20% and this importantly allows businesses to expand, contract and respond to changing marketplaces with agility. In other economies where both employee and employer are locked into more rigid structures, such as France and Spain, as we’ve seen growth and recovery can be stifled. This flexibility is a real strength for the UK economy and it provides great opportunity for contractors to operate in different ways.

Each structure has its own benefits and a quick consultation with a reputable provider will help you decide which option is going to be best for you. Jovan Pavlicevic, Commercial Director at Forest (www.forest-group.co.uk) suggests Umbrella tends to be skewed more to those on an hourly rate, while a limited company is usually for those on higher, or daily, rates. While income level is one of the important factors in choosing which option is best, Pavlicevic cautions that it's not the only factor to weigh up. Do you see yourself contracting long term, or is it a short term solution? Do you intend to apply for a mortgage any time soon? These and more, make up your whole financial situation, and it's these things that your provider should have an understanding of if they are going to understand your overall financial well-being.

Whenever you are choosing a new service provider, in whatever professional context, look for a firm with a good reputation, strong recommendations and an industry accreditation. Talk to a potential advisor and try to gauge how strong their focus is on attention to detail and customer care.

Work through your options and get the answers to your questions, however tough. With the right advice to get you set up properly and to steer you through the practical and legislative landscape, contracting through an Umbrella or Limited Company can be great for your finances and for your flexibility