7 Questions When Choosing Between a UK Umbrella Company, LTD or Recruitment Agency

Limited Company vs. Recruitment Agency Payroll vs. Umbrella Company

There are three main routes you can take towards contracting independence in the UK. They all have their advantages and disadvantages that depend on your chosen field, accounting knowledge and the time you have available to devote to administrative and compliance issues.

Recruitment Agency Payroll

A recruitment agency works on behalf of organisations to find independent contractors for specific assignments. Many contractors start with a recruitment agency to build their resume and gain industry experience.

Recruitment Agency Advantages

  • Recruitment agencies find work for you
  • Agencies take care of taxes, insurance and other administration issues
  • They do not charge an upfront fee to contractors

Recruitment Agency Disadvantages

  • High competition for non-specialized roles
  • Lower pay
  • No control over your branding
  • Restricted locations

Limited Company (UK)

A limited company or personal service company is the most complex route to contracting. The process of setting up a limited company can be extensive and time-consuming.

Limited Company Advantages

  • Most tax efficient model
  • Personal assets are protected
  • Increased professionalism
  • Full control of branding
  • Full cash flow management
  • Tax-deductible business expenses

Limited Company Disadvantages

  • Not available to all contractors depending on IR35 status
  • IR35 rules making it more difficult to source clients
  • Requires professional indemnity insurance (additional cost)
  • Full responsibility for tax issues, payments and penalties
  • No employment rights
  • Accounting rules can be complex, requires accounting services in most cases (additional cost)

Umbrella Company (UK)

Umbrella companies act as intermediaries between you and your clients. They provide you with a professional service that manages all your compliance issues – including tax payments, national insurance obligations and access to rights under the Employment Rights Act 1996.

How do umbrella companies work?
An umbrella company employs you and acts as a third party between you and your clients for invoicing and payments. They empower you with a great deal of flexibility and freedom from administration issues while allowing you to direct your business on your terms.

What is the margin among umbrella companies?

Umbrella companies typically charge a small margin in exchange for their services. Margin at Cool Company are £22.50 per week or £80.00 per month for the following services:

  • Reporting and paying taxes
  • Depositing your salary into your bank account
  • Insurance and employment protection

Umbrella Company Advantages

  • No compliance or administration hassles
  • Tax payments automatically deducted
  • Intuitive interface to input and track assignments
  • Freedom to run your own company with your own website and branding
  • Location independence and flexibility
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Some critical questions to ask before choosing a contracting route

Every contractor is different. The choice of contracting routes depends heavily on your experience level, available time and career path. Here are some helpful questions to consider before making a choice:

Starting your own limited company is complex and requires extensive accounting knowledge. If you’re just starting out and don’t mind entry-level positions with limited advancement, a recruitment agency may be your best option. Agencies are usually an excellent choice for contractors wishing to gain some work experience and exposure to their chosen industry.

Experienced professionals that are well on their way towards building their business usually require more control over their career. Joining an umbrella company brings many of those benefits that come with starting a limited company – but without the administrative hassle.

Starting a limited company requires that you spend time taking care of administrative issues in addition to staying up to date on changes in legislation. Recruitment agencies and umbrella companies take care of those issues and can free up time so you can focus on your assignments.

Working with an agency requires that you represent them and work on their behalf.
Having your own limited company or working for an umbrella company means that you are in control of your branding and are operating as a free agent. For experienced professionals, this is essential because it allows them to have their own website, do their own marketing and networking, and source their own clients.

Having a limited company requires that you either have some knowledge of accounting matters or have the resources to employ an accountant that can help you.

Accounting rules change regularly, so a limited company may be a good option if you have the time. Otherwise, you can join an umbrella company that will take care of accounting matters and other administrative issues.

IR35 is a piece of tax legislation that can affect your status as a contractor and limit your eligibility to create a limited company. Click here for more information on IR35.

Recruitment agencies typically operate within a chosen location. Contractors choosing to use an agency usually have to be available to take on assignments within that area and cannot be location independent. Having a limited company or joining an umbrella company gives you the freedom to work from anywhere in the world, depending on the needs of your clients.

Starting your own business requires commitment and time to build your client list and generate referrals. Umbrella companies give you flexibility and independence from administration issues so you can focus on building your business and advancing your career.

Do you want to know more?

Do you have any questions or are you ready to get started with Cool Company?