Whats Best for UK Contractors in 2025?
Umbrella Company vs Limited Company. What’s Best for UK Contractors in 2025?
We can all agree that contracting has a lot of advantages; you can develop your skills by working for multiple clients, you’re able to pick and choose projects that excite you, and you have no one to answer to but yourself. You’re not bogged down by an employer, nor are your offerings fixed. You can expand your services and grow as a professional as much, or as little, as you want. After all, as a contractor, no two projects are the same and there’s always a new client, sector or industry to explore. But, in 2025, a growing number of contractors are thinking about the way they approach things.
As a UK contractor in 2025, deciding how to structure your work is one of the most important choices that you’ll make. You might have been working as a sole trader so far but, as your business grows, it could be time to shake things up. This is where umbrella companies and limited companies come in. Whether you’re considering an umbrella company or a limited company, the right option depends on your earnings, contract length and willingness to manage your financial affairs. It’s important that you make the right decision and the
Go Limited experts are here to help.
PAYE vs. Umbrella vs. Ltd Company
To truly know whether working with an umbrella company or a limited company is right for you, you need to understand the differences between the two, which largely comes down to how your income, tax and National Insurance contributions (NICs) are handled.
PAYE
If you are a traditional employee - meaning, if you’re employed by a single client, and you don’t work on a project-by-project contracting basis - you will be paid via the Pay As You Earn (PAYE) system. For you, being paid in this way is extremely simple as your employer will handle deducting your tax and NICs, as well as any student loan repayments or pension contributions. They’ll also handle the administrative side of tax and NICs, making sure that you’re complying with HMRC tax rules and paying the right amount.
This makes things simple and straightforward for you, as you have minimal responsibility. But, it’s not always the right choice for everyone, especially those who value the flexibility and independence that comes with contracting.
Umbrella Companies
For contractors looking for a simple way to work, without going to the hassle of setting up a limited company, umbrella companies are a worthwhile option. Acting as your employer, umbrella companies pay you through the PAYE system - in the same way an employer would - and deduct income tax and NICs, but they also deduct their own fees. This gives you the simplicity of being paid by an employer and takes the administration side of things off of your plate, whilst still enabling you to trade as a contractor.
Working under an umbrella company - also referred to as
working inside IR35 - is simple and stress-free, but it doesn’t give you much freedom when it comes to maximising your take-home pay. As you’re considered an employee for tax purposes, you’re not able to reduce your taxable income by claiming a wide range of allowable expenses, nor are you able to be paid by combination of salary and dividends. You’ll also have to factor the umbrella company’s fees into things.
Limited Companies
As a contractor, you can choose to set up a limited company, which allows you to run your own business. Instead of operating as a sole trader, setting up a limited company makes you the director of your business and gives you a lot of control over your finances. You aren’t paid by PAYE and instead you manage your own pay, but this also means managing your own tax and NICs payments.
One of the main benefits of setting up a limited company is being able to combine a low salary with dividends for tax efficiency, boosting your take-home pay and reducing the amount of tax you need to pay. You can also claim a wide range of expenses, which can make you even more tax-efficient, and you’ll benefit from limited liability. Of course, along with the advantages, this approach to contracting does require more responsibility. You’ll either have to manage your tax yourself, or you’ll need to hire an accountant.
Umbrella Company vs. Limited Company
When it comes to deciding whether umbrella companies or limited companies are best for UK contractors in 2025, it’s important to take a look at the pros and cons of each.
Tax
With an umbrella company, your income is taxed through PAYE, with all deductions handled for you. With a limited company, you have the freedom to manage your income yourself, making it as tax-efficient as possible by combining a low salary with dividends.
Admin
Umbrella companies handle all of the administration side of your contracting on your behalf, which is why it’s considered to be the simplest option for contractors. Limited companies require a lot more involvement and there’s more administration involved. You’ll need to file annual accounts, VAT returns if your business is VAT registered and pay corporation tax.
Expenses
When you work with an umbrella company, you’re allowed to claim limited expenses, such as travel and subsistence. But, the expenses that HMRC deem to be allowable are small. As a limited company contractor, you can claim a wider range of allowable expenses, including office costs, equipment, training and transport. Claiming these expenses can significantly reduce your tax bill.
Control
You don’t have a lot of control when you’re working under an umbrella company, which is part of the appeal. They manage your finances on your behalf and you have minimal say over how that’s done. But, limited companies give you complete control over your business operations, allowing you to tailor your finances to suit your needs.
Umbrella Company Versus PAYE
An umbrella company and PAYE employment both operate through the same tax system, with tax and NICs deducted automatically. But, whereas PAYE employment means you’re working for a single employer, an umbrella company provides more flexibility by enabling you to work on multiple contracts. Umbrella companies and PAYE both mean you’re classed as an employee for tax purposes.
Moving From Umbrella company to Limited Company
If you’re planning to transition from an umbrella to a limited company, there are a few things to keep in mind.
Assess Your Earnings - Before you take the plunge and move from an umbrella company to a limited company, take a look at your earnings. Transitioning to a limited company is most beneficial for those with a relatively high annual income, as the potential benefits and tax savings are likely to outweigh the additional responsibilities. You might have more to do in terms of paperwork and financial management, but you’re likely to increase your take-home pay.
Understand the Setup Costs
There is a cost to setting up a limited company, so you need to decide if the cost can be justified by the benefits you’ll get.
You’ll need to factor incorporation fees, opening a business bank account, and potentially hiring an accountant to manage your finances, if you’re not confident in doing so yourself. Of course, for a lot of contractors, the tax saving benefits of setting up a limited company more than make up for the costs involved.
Familiarise Yourself with IR35
As a limited company director, you’ll need to understand IR35 legislation. Contracts inside IR35 reduce the tax benefits of operating through a limited company, which is why a lot of contractors set up a limited company with the aim of avoiding IR35 altogether.
Prepare for Your New Responsibilities
Setting up, managing and running a limited company means taking on additional responsibilities, both on a day-to-day basis and at the end of the financial year. This includes maintaining accurate records, filing tax returns and making sure that everything you do is compliant with HMRC regulations. This can take up a lot of time, especially at the beginning when you’re familiarising yourself with everything, and you'll need to be prepared for the extra work. If you don’t want to take on the extra work yourself, you’ll need to look into hiring a limited company accountant.
At Go Limited, we know that you have a lot of options as a contractor. You can choose to become an employee by working for one client, or you can choose to work for multiple clients as a contractor. You also have the choice to utilise the services of an umbrella company, or to set up your own limited company. There’s a lot to consider but, more often than not, setting up a limited company comes with the most benefits. Though starting a limited company as a contractor can be daunting, the
Go Limited experts are always on hand to help.
FAQ: Brolly Vs Ltd – Umbrella Company vs Limited Company. What’s Best for UK Contractors in 2025?
1. What’s the difference between an umbrella company and a limited company for UK contractors in 2025?
The key difference lies in how income, tax, and administration are handled.
- Umbrella companies act as your employer, pay you through PAYE, and handle all tax and NIC deductions for you – ideal for simplicity.
- Limited companies allow you to run your own business, combining salary and dividends for tax efficiency, but with added admin and legal duties.
Go Limited can help you weigh up the pros and cons based on your income, contract type, and growth goals.
2. Is it more tax-efficient to work through a limited company or an umbrella company?
Working through a
limited company is often more tax-efficient, especially for those earning
£35,000+ annually and operating
outside IR35. It allows you to combine a
low salary with dividends and claim a broader range of expenses. Umbrella companies offer simplicity but come with
full PAYE taxation and fewer deductible costs.
Use Go Limited’s tax strategy tools to compare real take-home pay between umbrella and Ltd structures.
3. What are the main benefits of working under an umbrella company?
- Hassle-free payroll and admin
- Full tax compliance via PAYE
- Employee rights like holiday and sick pay
- No need to run a business or file company accounts
- Umbrella companies are a good fit for short-term contracts or inside-IR35 roles.
Go Limited partners with compliant umbrella providers and can help you decide if it’s the right fit.
4. What are the main benefits of setting up a limited company as a contractor?
- Tax savings via salary and dividends
- Full control over your finances and operations
- Limited liability to protect personal assets
- Access to wider business expense claims
While more responsibility is involved, the long-term financial benefits can outweigh the admin. Go Limited offers full-service support to help you launch, run, and optimise your limited company.
- 5. Which option gives me more control over my business: umbrella or limited company?
A limited company gives you complete control over how you operate, how you’re paid, and how much tax you pay.
An umbrella company is hands-off – great for simplicity but offers limited control.
Go Limited helps you take back control by setting up your company and handling the heavy lifting.
6. What are the admin responsibilities for limited company directors in 2025?
As a director, you must:
- File annual accounts and confirmation statements
- Submit Corporation Tax returns and manage payroll
- Maintain accurate records and stay IR35 compliant
These responsibilities are manageable with the right support. Go Limited handles all statutory filing and ongoing compliance – so you don’t have to.
7. Can I move from an umbrella company to a limited company as a contractor?
Yes, many contractors start under an umbrella for convenience and later switch to a limited company when earnings or contract lengths increase. Before moving, consider:
- Your annual income (generally £35k+ makes it worthwhile)
- Setup costs and responsibilities
- IR35 status of your contracts
Go Limited makes the transition easy with guided setup, accounting, and IR35 checks.
8. Are umbrella companies better for short-term contracts?
Yes, umbrella companies are typically better for:
- Short-term or inside IR35 engagements
- Contracts with multiple short clients
- Contractors wanting no admin or compliance burden
If you’re just starting or prefer simplicity, Go Limited can connect you with a vetted umbrella provider.
9. What expenses can I claim with a limited company vs. umbrella company?
With a
limited company, you can claim a wide range of
business-related expenses:
- Equipment and software
- Travel (not regular commuting)
- Home office costs and professional development
With an umbrella, allowable expenses are heavily restricted – usually limited to travel and subsistence, and only if you’re not under SDC.
Go Limited helps maximise your allowable expenses and ensures you stay compliant with HMRC.
10. How does IR35 impact my decision between umbrella and limited company?
- If you are inside IR35, umbrella companies are usually more practical, since tax is handled through PAYE.
- If you’re outside IR35, a limited company is likely more profitable, offering tax benefits and full control.
Go Limited can assess your IR35 status and advise you on the best trading model for each contract.
This article compares umbrella companies vs limited companies for UK contractors in 2025. Umbrella companies offer simplicity and compliance but lower earnings and less flexibility. Limited companies offer more control, tax efficiency, and higher take-home pay — but with added responsibilities. Learn when and how to switch to the right setup for your contracting goals.
Please note: Any rates and thresholds mentioned in this article are correct at the time of publishing and may be subject to change.
