Personal Service or Umbrella Company?
Personal Service Company vs Umbrella Company. The Freelancer’s Guide for 2025
There are a lot of sole traders, freelancers and contractors in the UK, all of whom have had to decide how to approach their work. Some decide to operate as sole traders, continually freelancing and working alone, under their own name. Some join up to an umbrella company, wanting the ease and convenience that comes with having someone else manage the paperwork side of things. But, for those who want to grow and build their business, setting up a limited company is the obvious option.
At Go Limited, we know there are a lot of benefits that come with joining an umbrella company, but it’s impossible to deny the appeal of starting your own personal service company. Whether you’re just starting out or you’re looking to improve your current setup, understanding the differences between a personal service company and an umbrella company can have a significant impact on your income, taxes and workload.
Personal Service Company vs. Umbrella Company
Personal service companies and umbrella companies both allow you to trade as an independent freelancer, but they have different ways of managing your business and income. To determine which freelancing approach is right for you, you need to familiarise yourself with what separates a personal service company from an umbrella company, and why you might choose one over the other.
What’s a Personal Service Company?
If you’ve been looking into the different ways of freelancing, you might have heard of personal service companies. A personal service company, or a PSC, is a type of limited company that contractors and freelancers can use to run their business. You can set up a personal service company, and then offer your services to clients on a contractual basis.
When you set up a personal service company, you automatically become the director and this gives you the freedom to decide how much to pay yourself - and whether you want to do so in the form of a salary, or as a combination of salary and dividends - which can be a tax-efficient way to boost your take-home pay. When you set up a personal service company, you’ll need to keep proper accounts, file annual tax returns and ensure compliance with HMRC regulations.
What’s an Umbrella Company?
As a freelancer or contractor, you also have the option to operate under an umbrella company.
An umbrella company is a service provider that acts as your employer, making you an employee for tax and legal purposes. Though you can still operate as a freelancer in terms of the work that you do, the umbrella company handles everything related to your income, tax deductions and National Insurance contributions (NICs). They do this via the PAYE system. An umbrella company will also manage things like holiday pay and sick leave; as an employee, you are entitled to the same statutory benefits.
Contracting Limited Company vs. Umbrella Company
Here are some of the biggest differences between contracting via a limited company versus an umbrella company.
Control
With a Limited Company, you have full control over how much you pay yourself and when. This gives you a lot of flexibility in terms of how you structure your income. But, working with an umbrella company removes a lot of this flexibility as you’ll be paid through PAYE, with a fixed salary and fixed pay days.
Tax
Limited Companies tend to be more tax-efficient than umbrella companies, increasing your take-home pay. By paying yourself a combination of salary and dividends, you can reduce your tax liability and increase the money you take home. As umbrella companies operate through PAYE, you’re taxed on your full income, and you don’t have the ability to take dividends. This means that freelancers who use an umbrella company tend to pay higher taxes, compared to limited company contractors.
Admin
There’s a lot that goes into running a limited company, both during the setup process and the day-to-day running of things. It requires you to keep accounts, file annual accounts and submit tax returns. An umbrella company takes care of all the admin for you, giving you more time to focus on your work. This includes handling your payroll, taxes and ensuring compliance with HMRC. Though more work is required if you freelance through a limited company, you have the option to hire an accountant to help.
Liability
A limited company provides limited liability protection, meaning that your personal assets - such as savings and property - are protected if anything goes wrong with the business. If the business can’t repay a loan or debt, your personal assets are safe. With an umbrella company, you don’t have the protection of limited liability.
Costs
Running a limited company can mean paying for accounting services, unless you’re experienced enough to handle things yourself. You also might need to pay for business insurance. Luckily, these costs are typically outweighed by the tax savings. Umbrella companies charge a fee for their services, and this is usually taken straight out of your earnings. Though this is an extra cost, the lack of administrative costs is appealing to many freelancers.
Moving from an Umbrella Company to a Limited Company
As your business grows, you may find that the benefits of operating through a personal service company become more attractive, especially if you want to maximise your take-home pay. Transitioning from an umbrella company to a limited company is a common move for contractors who want more control over their finances. If you’re interested in moving from an umbrella company to a limited company, there are a few key steps you need to take.
You’ll need to register your company with Companies House, choose a company name, choose the directors and shareholders, and decide how the business will be run. This is a relatively straightforward process.
Open a Business Bank Account
As a freelancer with a personal service company, you benefit from limited liability and you’re considered to be a separate legal entity to your business. To keep your finances separate from your personal account, you’ll need to set up a business bank account for your limited company.
Handle Your Finances
You’ll need to maintain proper accounts, issue invoices to clients and pay yourself a combination of salary and dividends. There are various tax laws and HMRC regulations to adhere to, which is why a lot of freelancers choose to hire a limited company contractor.
Close Your Umbrella Contract
Once your limited company is up and running, you’ll need to end your contract with the umbrella company and transition to your new business structure. This is something that often happens, and the umbrella company will have set processes for doing so.
The Benefits of Transitioning from an Umbrella to Limited Company
A lot of freelancers and contractors choose to transition from an umbrella to a limited company, and that’s largely because there are many benefits of doing so. Though umbrella companies offer time-saving services and convenience, the tax, control and liability benefits of setting up a personal service company are hard to say no to.
Increased Tax Efficiency
Personal service companies and limited companies give you a more tax-efficient way of managing your income, increasing your tax-home pay. By paying yourself a combination of salary and dividends, which isn’t an option if you’re freelancing under an umbrella company, you keep more of your earnings and pay less towards tax and NICs.
More Control Over Your Business
Contracting through a limited company gives you complete control over how you run your business. You can decide when to pay yourself, how much to reinvest in your business, who to work with and how to manage your finances.
Professional Image
There’s nothing wrong with working with an umbrella company, but some clients could view you as a more established, professional business if you have a limited company. Setting up a limited company shows that you take your business and work seriously, which could appeal to more high value, lucrative contracts.
Limited Liability
A limited company protects your personal assets. If your business faces financial difficulties or legal issues - for example, if it’s struggling to repay a debt - your personal assets, including your home and savings, will be protected.
As you can see, there are a whole host of benefits that come with transitioning from an umbrella to a limited company, which is why it’s something a lot of freelancers do. AtGo Limited, we’re often asked about freelancing via a personal service company versus an umbrella company, and there are definitely benefits to both. But, when it comes to having the most control over your business and maximising your take-home pay, setting up a personal service company tends to be the better option.
FAQ: Personal Service Company (PSC) vs Limited Company – What’s the Difference in 2025?
1. What is a Personal Service Company (PSC)?
A
Personal Service Company is a type of
limited company often used by contractors, freelancers, and consultants to offer services to clients.
It is typically:
- Owned and run by one person
- Used to manage tax efficiently (especially when outside IR35)
- Designed for service-based work (e.g., IT, design, consulting)
Go Limited helps PSCs set up fast, stay compliant, and manage IR35 risk from day one.
2. What is a Limited Company (Ltd Co)?
A
Limited Company is a
separate legal business entity registered with Companies House.
Unlike a PSC, it can:
- Have multiple directors and shareholders
- Employ staff and run complex operations
- Serve broad sectors including retail, manufacturing, or professional services
Whether you’re a solo contractor or scaling a business, Go Limited helps structure your company the right way.
3. How does IR35 impact Personal Service Companies in 2025?
If your PSC contract is considered
inside IR35, HMRC treats you as an employee.
This means:
- Your company pays full Income Tax and NICs
- You lose access to dividend tax efficiencies
- Take-home pay is reduced
Go Limited offers IR35 assessments and contract reviews to protect your tax position.
4. Is a PSC legally the same as a Limited Company?
Yes. A PSC
is a Limited Company, but it's classified differently due to:
- How it operates (typically just you)
- Its exposure to IR35 legislation
If you start hiring or expanding, your PSC can evolve into a broader Ltd Co model.
Go Limited supports your business at every stage – from solo contractor to full company growth.
5. Should I set up a PSC or a standard Limited Company?
It depends on:
- Your work style – PSCs suit solo contractors/freelancers
- Your growth plans – Ltd Co is better if you're hiring or expanding
- Your IR35 risk – PSCs face more frequent assessments
Go Limited offers a simple tool to help you decide which structure fits your goals and risk profile.
6. What are the main advantages of using a PSC?
- Tax efficiency (if outside IR35)
- Claiming business expenses
- Professional image vs sole trader
- Full control over how you get paid
Go Limited optimises your pay structure and helps reduce your overall tax bill legally.
7. What are the disadvantages of operating as a PSC?
- More admin (accounts, payroll, tax returns)
- IR35 exposure, especially with long-term clients
- Limited flexibility to work like a traditional employee
With Go Limited, you can outsource the admin while staying compliant and efficient.
8. Can IR35 affect larger Limited Companies too?
Rarely.
IR35 is designed for personal service situations, where an individual behaves like an employee but is paid via a company.
Larger Ltd Companies with:
- Multiple employees
- Diverse clients
- Separate management
are less likely to be caught by IR35.
Go Limited supports both PSCs and growing Ltd Co operations with tailored compliance plans.
9. How do I choose between a PSC and a standard Ltd Co?
Ask yourself:
- Do I work alone or with others?
- Do I have one or many clients?
- Am I concerned about IR35 rules?
- Do I plan to hire employees or grow?
If you’re not sure, Go Limited offers a free consultation to help you make the right call.
10. What’s the difference between a PSC and a regular Limited Company?
| Feature | Personal Service Company (PSC) | Standard Limited Company (Ltd Co) |
|---|---|---|
| Purpose | Contractor or freelancer setup | Any type of business |
| Ownership | Typically one person | Can have multiple stakeholders |
| Clients | Often one or two at a time | Many clients, projects or staff |
| IR35 Impact | High (frequently assessed) | Lower (diverse work structure) |
| Tax Strategy | Salary + dividends (if outside IR35) | Similar, but broader options |
This guide compares personal service companies (PSC) and umbrella companies for UK freelancers in 2025. While umbrella companies offer simplicity, PSCs give you better tax efficiency, full business control, and limited liability. Learn how to switch, reduce tax, and decide which structure fits your freelance goals.
Please note: Any rates and thresholds mentioned in this article are correct at the time of publishing and may be subject to change.
