Choosing a Company Structure, Limited or Umbrella?

Taking that first step and deciding to become a contractor is an exciting time and there are lots of new changes on the horizon. You’re in charge of finding work and managing your own finances, so there’s plenty of challenges ahead to keep you busy.

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Which options are available?

When it comes to choosing how to operate, there are a few options on offer. As a contractor, your two main options are to contract through your own limited company, or through an umbrella company.

Aside from these two structures, did you know that there are other options on offer? We have taken a look at these in more detail, in this guide.

Umbrella company

An umbrella company acts as an employer for contractors working on fixed term contracts.

The main function of an umbrella company is to organise payment for the contractor, deducting Income Tax and National Insurance Contributions before passing on the final figure to the contractor.

Limited company

A limited company is a company that has been incorporated at Companies House, and is recognised as a separate entity from its owners.

Although this pathway is slightly more complex due to the incorporation process, it is popular with contractors because of the tax benefits.

Other business structures

Alongside these two main options, there are other business structures to take note of when starting up. These include the following:

Sole trader

If you run your business on a self-employed, individual basis, you are likely to be seen as a sole trader. Being a sole trader is the easiest way of running a business, but you must register as being self-employed with HMRC.

A downside to this is that your personal and business assets are not separate; if things go wrong your possessions could be at risk.


In a partnership, you and your partner share the responsibility for your business. As well as sharing responsibility, you share the profits and each partner pays tax on their share.

You must register with HMRC, stating your company name and nominated business partner.

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How can SJD Accountancy help?

Appointing an accountant can save you time and stress when starting up on your own. If you would like to speak to someone about any of the above information or any other queries you may have, arrange a callback and a member of the team will be in touch.

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