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Contractors - To be limited or not to be ?

Published about 7 years ago by Elkie Holland

A major question these days facing Contractors is whether they should work through an Umbrella company or have their own Limited company.  I went and spoke to John Harris of Trafalgar Contractor Solutions Ltd to find out more.  Trafalgar Contractor Solutions is a company which offers both solutions to Contractors.

ELKIE:  What are the main options for Contractors these days ?

JOHN:  Generally there are 2 options: Umbrella or Ltd Company.  However, Trafalgar offer a 3rd option.  This is a hybrid limited company option called "Smart Pay" which has all the benefits of a traditional limited company with none of the paperwork or administration. 

ELKIE:  I believe the traditional approach within the IT sector has been for the contractor to set up a Limited company.  Is this right ?

JOHN: Yes it has been. However Umbrella companies have now been around for several years and can offer advantages over setting up a Limited company in several ways.

They are particularly beneficial for short term contractors or low value contracts because there is immediate setup, minimal paperwork and administration and all insurances are included. Furthermore many contractors just don’t want the hassle of setting up and running a Limited company.

ELKIE:  What does Trafalgar offer for the traditional limited company solution approach ?

JOHN:  We offer a free Limited company formation service which can be set up in under 2 hours together with free company bank account and all associated paperwork.  Accountancy is from £118.00 plus VAT per month

We appoint a personal Account Manager who is on hand for help and assistance and will prepare:

  • Payroll and Salary
  • Quarterly VAT returns
  • Corporation Tax calculations and submission to Inland Revenue
  • End of year PAYE returns, including P35, P60, P11D
  • Annual Return
  • IR35 and related issues
  • Dividend Planning
  • Personal Tax advice
  • Year End Accounts 

ELKIE:  What does an Umbrella company actually do for a contractor ?

JOHN:  In short, it takes care of all employment, administration, invoicing, expenses and payroll for the Contractor. All the contractor has to do is get their Timesheet (Work Verification) sheet signed (authorised) and send it to us and we take care of the rest. For a fixed fee (some companies work on a percentage basis) the contractor gets: 

£20 million Business Insurance cover.

    • Employers Liability - £10,000,000
    • Public Liability - £5,000,000
    • Professional Indemnity - £5,000,000

Tax and National Insurance is deducted so the money the contractor receives in their bank account is their net pay, their money to spend or save as they wish.

ELKIE:  What sort of costs are there if a Contractor goes for the Umbrella solution ?

JOHN:  The weekly margin / cost is £29.50 which has an effective impact of £15.03 per week on the net take home pay, and the contractor only pays when they are working.  However some umbrella companies work as a percentage or a constant retained basis.

ELKIE:  What are the advantages of using an Umbrella for a contractor ?

JOHN:  The 4 main advantages, as I see it are:

  1. Non billable expenses can be claimed subject to HMRC 24 month rules, meaning travel, food and accommodation can be offset against tax, thus making contracting a tax advantageous way of working and being paid.  
  2. No on-going tax responsibilities as all taxes and National Insurance is deducted before payment.
  3. Full administration support, the contractor signs an employment agreement with Trafalgar and we supply documentation and sign the contract with the agency/client.
  4. No on-going responsibility of becoming a company director or running a limited company.

ELKIE:  What differentiates Trafalgar from other Umbrellas ?


  1. Trafalgar’s umbrella company pays the contractors faster than any other umbrella.  Our SalaryNow payment solution means your contractors are paid 3 working days after submission of a client authorised timesheet. A Same Day Cash Advance is also available on the day of submission of a client authorised timesheet.  This means in most cases the contractor is paid by Trafalgar before we receive the money from the agency. Most other umbrella companies will only pay once the umbrella company has been paid first, which in some cases could be 15 to 30 days after the invoice has been raised.  
  2. Trafalgar don’t use call centres, meaning your contractors have direct access to the Trafalgar customer care team by phone, email or text, with the phones being answered within 2 or 3 rings each time.
  3. We understand the importance of customer care and clear communication, many of our contractors have been with us for over 10 years and appreciate our attention to detail, communication and customer service which is at the forefront of what we do.   

If you have any additional questions, please contact John Harris from Trafalgar Contractor Solutions Ltd direct.

Contact:           John Harris
Company:        Trafalgar Contractor Solutions Ltd
Direct Phone:   020 7940 1992
Main Phone:     020 7940 1990

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