Umbrella or limited company: a practical contractor checklist
A decision framework for comparing engagement routes without reducing the choice to a single take-home number.
What to take away
- The engagement route and IR35 status are related but not interchangeable.
- Compare the full assignment rate, deductions, costs and responsibilities.
- Verify the provider and avoid arrangements promising unusually high retained income.
Start with the engagement route
If you are employed by an umbrella company, HMRC says the off-payroll working rules are unlikely to apply to you. The umbrella normally employs you and operates PAYE. A personal service company is different: it is your intermediary and the off-payroll rules may apply to each engagement.
For an umbrella engagement
Ask for a clear reconciliation from the assignment rate to your gross pay and estimated net pay.
- Umbrella margin and any other fees
- Employer costs taken from the assignment rate
- Holiday pay method and pension treatment
- Who carries professional insurance
- How expenses are handled
For a limited company engagement
Consider accounting, insurance, company administration, payment terms, gaps between contracts and the commercial obligations in the agreement. An Outside IR35 label does not remove those responsibilities.
Be cautious with avoidance claims
Treat promises of unusually high take-home pay as a warning sign. HMRC specifically warns contractors about schemes that claim to get around the off-payroll rules. Independent professional advice can be valuable before joining an unfamiliar arrangement.
Continue reading
IR35 essentials
Inside vs Outside IR35: five checks before you accept a contract
Read guideIR35 essentials
Status Determination Statements: what UK contractors should look for
Read guideEducational information only. This guide is not individual tax or legal advice. Status depends on the full facts and working practices of each engagement.