You’ll often find discussions and reasons as to why you should move from an umbrella to a limited company. But we thought we’d discuss the reverse, because sometimes, the arrangements of working through a limited company, no longer make sense for the position you are in. So why might you consider switching from a limited to an umbrella company?


1. Too-much administration with a limited company 

The appeal of having control over your finances as well as having the potential to increase your pay retention often plays a large part in an individual’s choice to go limited. But sometimes, this advantage feels short-lived in comparison to the hassle of managing a limited company. While some might love running their own business, for others, having to constantly keep updated on legislation changes and ensure all administration is in order may feel too time-consuming and overwhelming.


2. Short-term contracts

What’s more, if you simply prefer the flexibility of working short-term contracts, then a limited company would simply no longer make sense. The time spent communicating with accountants, HMRC, Companies House as well as creating invoices, running a company bank account and arranging all necessary documents would likely not be worth the length of time you have on each contract. So changing to an umbrella company may make more sense for you. Plus, since umbrella companies are easy to join and leave, they are ideal for temporary commitments. They are also, perfect for contractors who want to ensure that the expenses and income of one particular contract are ‘self-contained’ outside of their usual arrangements.


3. IR35

Of course, getting caught inside IR35 is a significant reason why you may switch to an umbrella. If your contracts all fall inside IR35 then it is no longer financially or tax efficient to work as a limited company. Equally, if you have only one or two contracts that fall inside IR35, then it might make sense for you to arrange for these contracts to be handled through an umbrella to ensure you remain compliant.


4. Tax or legal problems

Unfortunately, some contractors may end up running into tax or legal problems, where the safest option is to close down their limited company until the issue is resolved. Consequently, turning to an umbrella is a quick and easy option to keep working as a contractor while handling these issues.


5. Personal problems

A perhaps less common reason why contractors may choose to move to an umbrella company is due to personal issues. Whether there’s a possibility of a divorce, agency contractual commitments or conflicting profit sharing arrangements, switching to an umbrella company may give you more peace of mind.


What to do if you do choose to switch

Whatever the reason for transferring from your own limited company to an umbrella company, you will need to consider the formal process of closing down the company or alternatively, arranging to keep it on a dormant company basis. Talk to your accountant about what the best option is for you.

Of course, finding a trustworthy and transparent umbrella company is equally important. That’s where JSA umbrella comes in. One of the UK’s most compliant and respected umbrella companies and fully accredited by FCSA. This means you can work safe in the knowledge that your employment rights, PAYE and National Insurance contributions, pension contributions and holiday pay are being dealt with by a company you can trust.