ProClinical Life Sciences Recruitment Blog

Limited or umbrella? Why contractors choose an umbrella company

Posted by Peter Hogg

27/05/14 08:12

Contracting through an umbrella companyTo help you to make your decision about whether to go limited or umbrella, we spoke to some life sciences professionals who work through umbrella companies about their decision to do so, and asked them to share their advice.

Before a recruitment agency can place you into a contract role, you will usually be required to either work for an umbrella company or set up your own limited company so that you can be paid and meet your tax liabilities. So, if you’re thinking of becoming self-employed and working as a contractor for the first time, or even reconsidering your current circumstances, you will probably need all the help that you can get to decide which option is best for you.

We've previously, discussed the pros and cons of umbrella and limited companies, and spoke to contractors who have set up a limited company; now it is the turn of those who use an umbrella company to have their say.

Contractor Regulatory Operations Consultant

Priya
Regulatory Operations Consultant

When did you decide to start contracting and why?

I started contracting in 2011. I had a short-term UK visa and was not sure that I should go for a permanent position. I had heard that, in the UK, contracting was a good option if you don’t want to commit yourself to a long-term position.

What are the best things about contracting and what are the main drawbacks?

The good thing about contracting, I think, is the varied types of work; it really gives you a flavour for different kinds of positions and you don’t have to be in the same one for long. Some contract roles can become a bit monotonous – although not all of them – but at least you can take what you have gained in experience into the next position and move up to the next level without having to wait for a promotion.

On the negative side, if you want to learn more about a certain skill and if your contract is only for a set period, you might not have time to get into the details of it. A permanent position, on the other hand, will allow you to learn more and enhance your skills before moving on to the next step.

What is the main reason that you chose to use an umbrella company rather than setting up your own limited company? Who or what influenced your decision?

I used an umbrella company because it avoided a lot of paperwork – I wouldn’t have the hassle of setting up a private limited company and establishing the accounts, dealing with accountants, or doing all the other paperwork. With an umbrella company, I just get paid as though I was working in a permanent position.

Do you feel that you made the right decision, and would anything make you switch to a limited company now?

I’m actually in the process of applying for a long-term visa and once I get that approval I will switch to a private limited company because I think that I will be in a better position to start managing things.

What are the best things about using an umbrella company and what are the main problems with it?

The best thing is avoiding paperwork. The problem sometimes though, is that when you submit your timesheets, the invoicing takes a bit longer than if you had a limited company. There are some delays in the process because it’s not direct; it’s done via several steps that can take some time.

What advice would you give to someone who is deciding which to choose?

I think that if they are not sure what to do, they should definitely try using an umbrella company. Most umbrella companies have the option to terminate if you are not happy, so if they want, they can change to a limited company later.

Contractor Regulatory Affairs Manager Sohail
Regulatory Affairs Manager

When did you decide to start contracting and why?

I started contracting in 2012. I’d been working for a consultancy in London but felt that I’d taken my career as far as I wanted to and that with my expertise and experience within the industry, doing contracting would mean my take-home pay would be considerably more.

What are the best things about contracting and what are the main drawbacks?

Obviously the compensation is one of the main benefits as well as being involved with different products and companies. The main drawbacks, though, can be the gaps in contracts or if you get a mundane role where your skills aren’t utilised properly

What is the main reason that you chose to use an umbrella company rather than setting up your own limited company? Who or what influenced your decision?

I actually chose to go limited over umbrella to start with, but later I got a contract in Amsterdam and was obliged to use an umbrella company because in the Netherlands it is very hard to work for a UK limited company because of restrictions.

Would anything make you switch back to a limited company now?

Well there are key areas for contractors outside the UK, such as the Netherlands, Switzerland and Germany, where I would need an umbrella company. But if I go back to working in the UK then I will use my limited company again.

What are the best things about using an umbrella company and what are the main problems with it?

One of the benefits of an umbrella company is that you have access to all of your money, whereas with a limited company you will need to leave some in the business, because if you take out all your funds then you would be subject to further taxes on top of your corporation and dividends tax. The main issue though, is the cost. With an umbrella company, you will only actually take home around 63-65% of your earnings.

A problem that I experienced with using a UK umbrella company and working abroad was that I was losing money in foreign exchange rates. I was paid in pounds, which was converted to Euros and then back into pounds, so was making a loss due to currency fluctuations.

What advice would you give to someone who is deciding which to choose?

If you are contracting long term then setting up a limited company is the way forward, but invoicing periods can be up to 60 days so you need to ensure that you have funds available. I’d also say that you should get a good accountant; they know what to charge, what your expenses and operating costs should be, and so forth. They know everything to factor in so that you pay the right taxes.

If you do choose an umbrella company, then shop around. If you are working abroad, don’t just look at UK umbrella companies. The Netherlands, Germany and Switzerland all have local umbrella companies that speak perfect English, and you can often get a better rate there.

To get the full picture, make sure you also take a look at our previous blog, in which we interviewed contractors who have set up their own limited company.

Did you find our contractors advice helpful? Why not share your stories and advice on becoming a contractor in the comments below.

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Topics: Limited Vs Umbrella, Contracting

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About this blog

ProClinical is one of the leading recruitment agencies in the life sciences sector. Blogs are written by ProClinical recruitment consultants and experts within the recruitment and life sciences industries. This blog features advice on finding new jobs and career planning, as well as life sciences news and hiring tips for employers.

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