When contracting a key decision is whether to operate through a limited company or an umbrella 
arrangement. In a nutshell, a simple summary of the advantages and disadvantages of each is as 
follows: 
• Advantages of a limited company: most tax-efficient solution, likely to maximise take home 
pay and worthwhile if you will be contracting for 3 to 6 months or more, or on an on-going a 
basis. You can optimise your remuneration with a mix of dividends and salary, with no National 
Insurance to pay on dividends, claiming a wide range of incurred expenses against your income 
and benefiting from the flat rate VAT scheme (where your customers can predominantly 
recover their VAT). This arrangement also legally separates you from the business, providing 
some protection from personal liability. It can also give a more professional impression in some 
situations. You are in control of your own money and free to run things your way.
• Disadvantages of a limited company: there are extra administrative responsibilities, you will 
probably need to invoice your customers/agencies and incur the cost of an accountant. You 
will also have certain obligations as a company director. However, accountancy fees are 
usually more than offset by the tax/national insurance saved and with a specialist contractor 
accountant, using a tailored web-based portal, everything can be taken care of easily and 
quickly, with minimum hassle and fuss.
• Advantages of an umbrella company: this is a simple arrangement, with little for you to do other 
than sign up, with all client invoicing, cash collection and remuneration being handled via the 
PAYE system by the umbrella company and less for you to do. Particularly suitable if you are only 
contracting once, for a short time, or between permanent jobs.
• Umbrella company disadvantages: you are likely to realise less take home pay and the higher the 
earnings, the greater the reduction in take home percentage (unless the company is using a non-PAYE tax scheme which could lead to later issues with the revenue). You are also less in control 
of your own affairs, with the umbrella company responsible for invoicing and collecting cash 
from your agency or client.