moving from umbrella into contracting

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Introduction 

Are you taking the time to consider moving from an umbrella company into contracting through your own limited company? There are many benefits and advantages when moving from umbrella into contracting. Indeed, when we consider this, the main benefit of moving from umbrella to limited status is the better take-home pay. However, when you proceed with moving from an umbrella company to a limited company, there are extra responsibilities as you’ll be a director and run your own contractor limited company. Therefore, when moving from umbrella to contracting, you’ll be a UK director in the future; however, you’ll be in control of your own financial affairs.

Many UK professionals currently use umbrella companies for contractors (UK). However, if the option arose, many would prefer to be a contractor working through a limited company. Nevertheless, this isn’t always an option, especially with the recent changes in IR35 legislation (see later). Therefore, many contractors today will work through UK contract umbrellas. However, given the chance to contract through their own limited company, many would take it.

If you’re currently working as an umbrella company UK contractor, you may be considering whether umbrella companies are worth it. As a result, you may be looking to make the switch. In this guide, we’ll look at the process of moving to your own limited company. When contracting via an umbrella company you may have the opportunity to work through your own ltd company. Therefore, we’ll look at the steps to take when you move from contracting through an umbrella company option to the initial process of setting up your own company for contracting in the UK.

Initial thoughts on moving from umbrella into contracting 

First thoughts

When moving from umbrella into contracting, you’ll work through your own limited company in future. Therefore, if you’re considering going limited, there’s the IR35 legislation to consider as part of this. Indeed, this is now in place for both the public and private sectors, for large and medium businesses. The company and the client will have a contract for the services for a fixed time.

Therefore, when you run your own limited company, if the contract is for end services with a large or medium business, the responsibility to determine the IR35 status falls with the service provider rather than you as the contractor. Any company limited company contractors caught by IR35 will pay taxes like regular employees. Therefore, it’s vital to be outside IR35 when you go into UK contracting.

What are the other things to do?

Once you become a limited company contractor, you must do a few things. Moving from an umbrella company into contracting includes setting up a limited company with Companies House. Moreover, reading some contractor limited company guides is an excellent way to get valid background information.

Moving from an umbrella into contracting for yourself 

What are the benefits of working through an umbrella company?

As a professional in your chosen industry, are umbrella companies good to work through? If you work through an IT contractor umbrella company (if you work in IT) or another UK contractor umbrella company, there are certain benefits of umbrella company contracting. Indeed, these include contractor umbrella company sick pay and holiday pay, and your employer may also make pension contributions on your behalf. In addition, some further umbrella company benefits are you’ll spend less time on administration and have fewer responsibilities.

What are the benefits of contracting through your own company?

When moving from umbrella into contracting, what are the benefits and is contracting worth it (UK)? Basically, when you move from umbrella contracting to limited company status, this has many benefits. Indeed, when you operate through your own limited company, one of the main benefits is you can earn more. What’s more, other advantages when you move from a contracting umbrella to working through your own limited company include:

  • You’ll be more tax efficient in terms of better take-home pay.
  • You’re in control of your own affairs.
  • When you’ve your own company, that’ll look better in the eyes of certain recruiters.
  • If you work efficiently, your own company can reimburse your salary, dividends, and expenses much quicker.

What should you consider as part of the switch?

In some cases, you may have the opportunity to move from an umbrella company to contracting; however, it’ll only be short-term. This could be three or six months with no guarantee of future work. In this case, moving from umbrella to contracting isn’t worth it. Therefore, you’ll be better off taking the time to choose a contractor umbrella for short-term work. On the other hand, if you switch to being a limited company contractor, you can assess if contracting in the UK for the long term will be worthwhile.

When you work through a contracting umbrella company and look to contract on your own, moving to your own company isn’t so much different from moving from a permanent employment role into a contracting position. 

What are the first steps when moving from an umbrella company to a limited company status? 

Initial steps

The initial steps to take when you’re moving from umbrella into contracting through your own company will include:

  • The first step when moving from umbrella to contracting is to contact your umbrella company. When you do this, you can let them know your decision about leaving on a specific date. What’s more, you may have to give them a period of notice, although not all contracting umbrella companies require this.
  • When moving from umbrella to limited company status, it’d be a good idea to wait until the end of your current umbrella contract before you switch. Indeed, it’s better than making the change to your own company mid-contract. Moreover, the contract between your umbrella company and recruitment agency or end client may need rewriting. The new agreement should show the new arrangement between your new company and the recruitment agency or end client.
  • When moving from umbrella company to limited company contracting, please read another of our guides, which covers tax tips for UK contractors.
  • Your contract umbrella company will work out your final payment, including any expenses. The umbrella company will make the final payment to you in due course.

Receive & send on form P45

When moving from an umbrella company to limited status, when you leave the umbrella company, they’ll give you form P45. Ordinarily, you’ll pass this form on to your new employer. If you’re planning to start up your own company, you can set up a PAYE scheme so you can take a salary from it in the future. When this is so, you’ll usually send your P45 to your accountant. This is because they usually set up the PAYE scheme and process your salary in due course.

We have a guide that compares the differences between UK contracting and freelancing and explains these two ways of working.

What are further steps to take when moving from umbrella into contracting? 

Initial steps/thoughts

Some further steps to think about when you’re moving from umbrella to limited company status are:

  • Once your company is set up, you’ll become its director, shareholder, and employee. Some people think it’s the same as being self-employed if you run your own company, but this is incorrect. As a UK contractor with your own company, you legally are an employee of your new business. Indeed, you’ll be a director and a shareholder, too.
  • When moving from an umbrella company into contracting and after registering your own company, you can set up a business bank account. What’s more, there are lots of choices for banking nowadays. In addition, most main banks enable a business to connect with an online digital platform, such as FreeAgent. Digital platforms are now used across the board for business record-keeping. Key to note: FreeAgent is most suited for UK contractors and small businesses, and many UK business owners favour this.

What are the second steps when moving from umbrella into contracting?

Some further things for you to do as part of the moving from an umbrella company into contracting process are:

  • From the outset, having a Business Tax account with HMRC is advisable once you register your company. Once it’s set up, it’ll give you a good overview of when your company is paying taxes in the future. Once your company is set up, HMRC will automatically register it for Corporation Tax. If your annual business turnover will be above the VAT threshold in the future, you can set up an HMRC Business Tax account and register the business for VAT. The Corporation Tax service and PAYE for employer service can also be added to the Business Tax account. Once you do this, you can view the position of your company’s taxes via your Business Tax account.
  • As part of your set-up, the best step is to appoint a specialist contractor accountant to look after you and help with your tax planning. Furthermore, your accountant will help ensure you’re set up in the future. They should help you operate in a tax-efficient manner, too. In addition, they’ll advise you where you can receive tax relief in all the different areas when you run your own company. You can bring the accountant in once you register your company. On the other hand, you can ask them to take care of the company registration process.

Final thoughts

When moving from umbrella to contracting, there are several factors to consider. Changing from an umbrella for contractors to becoming a contractor who runs your own UK company is quite a simple process. What’s more, when moving from umbrella to limited company status, if you have a good contractor accountant, they can make this change easier for you.

Finally, what are the benefits of an umbrella company compared to the benefits of contracting through your own UK company? Please read our guide, which covers when you contract through your own company versus an umbrella company in the UK. In this, we show the advantages and disadvantages of both business structures.

Link to Contractor Advice UK group on

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Published On: April 6th, 2024 / Categories: Moving Into Contracting /

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