Using Umbrella Companies: How To Setup A Limited Company

With all this talk of the IR35 tax reform which is one of the main topics of this Election, you must be wondering what is the deal with these umbrella companies?

  • What is an umbrella company?
  • Do you need to be using umbrella companies?

It is natural to not know anything about umbrella companies if you are not self-employed. But if you have read through the blog then you will have caught up knowing all about what an umbrella company is.

Now, we will tell you all about using umbrella companies and of course, for that you would have to leave your 9 to 5 and become self-employed. Just kidding… it never hurts to acquire a little more knowledge about the options you have available to you to get work as a contractor in the UK.

As a professional, or a skilled worker, you will be able to target any specialised sector doing contractor jobs from fitting doors to making them, from plumbing to writing articles online as a self-employed individual.

We will guide you on how to go from your current employment to a self-employed status to work as a contractor in the United Kingdom in this article.

Find Out All About An Umbrella Company From This Blog!

Legal Steps For Setting Up Limited Companies

The very first thing you will need to do is set yourself up in the limited company business structure.

As a limited company, you will be able to work as a contractor professionally in the UK. While there are other ways of being self-employed, we will focus on being a Limited Company.

As the term suggests, the financial liabilities for a company is limited in the limited company setup. The main distinction being that the company and your personal finances are setup to be completely separate. (Unlike the other option of working as a sole trader!)

When you read the above referenced blog, you will understand the many reasons why most professionals or contractors refrain from setting up businesses as sole traders.

As a result, it is common for most contractors to work as a limited company rather than sole tradership or others.

Legal Requirements That Must Be Met By Limited Companies In The UK

The following are some of the legal requirements of the highest level which must be met by all limited companies in the United Kingdom:

  • Limited Companies in the United Kingdom must all register themselves at the Companies House – the official registrar of companies in the UK.
  • The Limited Company directors are to submit their annual accounts information to Companies House
  • The Limited Company directors are also held responsible for the submission of the company’s Confirmation Statement to Companies House. This is a document which gives the brief overview of the company which needs to be submitted within the first 28 days of your limited company formation. However, it can be updated for no extra charges during any time of the year.
  • Each Limited Company must submit a corporation tax return – CT600 each year. Any tax payments, liabilityes or dues must be paid at least 9 months prior to the year end.
  • Limited Companies are responsible for deducting the Income Tax and National Insurance Contribution from employees using HMRC’s Pay As You Earn (PAYE) scheme.
  • Employees of the limited company must pay their income tax and national insurance on salaried income.
  • As per the Companies Act 2006, limited companies are not held responsible for appointing a company secretary. So, a limited company can be run by one director – that’s all!

Incorporating A Limited Company In The UK

The following are some of the legal documents which must be submitted to the UK Companies House by all limited companies in the United Kingdom:

  1. Form IN01

This form includes all essential details related to the limited company such as its directors, shareholders, officers, registered address, and other related details found in the form.

Here is a link to the Form IN01.

  1. Articles of Association

This document outlines the process by which the limited company will operate. Now, this doesn’t have to be something which is done from scratch by you. There are standard procedures or models available for use by most limited companies from Companies House.

Here is a link to the Articles of Association templates.

  1. Memorandum of Association

This is a legal statement which defines the relationship between the limited company and its shareholders. Each member gives a statement with their intention as a sort of constitution for the company.

Here is a link to Memorandum of Association templates.

Let’s Now Look At The Next Steps That Follow

Can You Do It On Your Own?

You can very easily form a company using Companies House as we outlined above. However, for good reason many contractors or skilled workers may choose to get it done using an agent such as an accountant or even umbrella companies.

Obviously, if you use an intermediate service provider for the process, it will cost you extra. Apart from the government fees, you will have to pay for the service they are providing in setting it up for you and any associated costs such as bank account services, etc.

But if you are in any sort of doubt, be sure to visit the Companies House website to find the most recent and accurate information so umbrella companies or others cannot rip you off.

How Much Does It Cost To Setup A Limited Company?

Believe it or not, if you were do it all for yourself using Companies House, it would all cost you just £12. Barring any additional costs, of course.

However, if you are thinking of using your accountant, then of course you will have to pay him his fees. You will realise that there are other associated tasks involved in the process such as registering your newly formed limited company for VAT, Corporation Tax and as an employer if you plan on having employees.

Or if you use umbrella companies, they will have their own fees for setting you up. Recruitment agencies also can help you set up your limited company. Now, many offer this service as goodwill in return for the ongoing business you will be conducting with them. But it is best to agree upon all terms before you sign an agreement.

Here Are Some Tips To Get The Most Out Of Working As A Limited Company

Although it is very difficult to make general statements, there are many factors out there and the following are some tips or ideas for getting the most out of your newly formed limited company’s relationship with recruitment agencies, umbrella companies, and of course, the clients!

Finding Contract Worker Jobs in UK

Before you worry about getting in touch with umbrella companies for all you taxing needs, you need to be actually finding work. Similar to finding a good employer in the traditional job market, you will need to create a CV which is both appealing to your clients as the right candidate with the right set of skills and also be able support your price quotation for work.

As a beginner, you can consider using the professional services of recruitment agencies to get contract work in your sector. But be sure to tailor your skills for each different type of client to ensure maximum success. Of course, you tend to spend a bit on fees, but think of it as an investment for building a clientele.

Establish Contact With Potentials

Yes, it is the age of the internet and everything is a quick email or even a WhatsApp message away. Making phone calls has become a rarity and because of that, it has also become something like an added advantage.

So, whether it is your recruitment agencies whom you have just sent your CV, potential clients whom you have quoted or made initial contact with, or umbrella companies which have quoted you for their services, pick up the phone and make a call to prove your worth. This will show how serious you are and determined about the services you want or the work you do.

Firm Yet Fair Quotation

Negotiation is quite the tactic, but don’t confuse firm pricing with fair or competitive pricing.

Don’t just over quote so that you can cut down on your quote by hundreds of pounds to land a client. It usually works better when you offer a competitive price and be firm on not reducing it.

The clients will see that this is a fair price, and they won’t expect you to cut it down by half.

So, be sure to research the contractor jobs market for prices, deadlines, etc. and try to find something that is not commonly offered by others.

This will give you a slight advantage over your competitors. Don’t be afraid to say no to an offer!

Commissions & Marketing Costs

Everyone is working to make money! Whether it is the recruitment agencies that are finding you contractor jobs or the umbrella companies which will be managing your finances, etc.

So, don’t make the mistake of haggling the commission rate down for those who are helping you. Rather inform them that since you are taking a certain percentage of commission which is high, increase the cost of your services to cover that cost. This will sound like a much better negotiation for recruitment agencies rather than fighting to get their 15% commissions down to 12% for example.

Do not think that money spent on ads on social media, etc. is a waste, rather it is an investment. So, if you can afford to invest in google ads, social media ads, and other digital marketing strategies – then do it!

Final Thoughts

So, now that you know all the legal steps for setting up a limited company in the UK, are you willing to be self-employed?

Don’t feel the pressure to take the plunge!

Rather, wait for the right moment, spend time researching umbrella companies and setting up appointments with reputed & trusted umbrella companies to explore your options.

Yes, it is a great idea to go directly to the client, do the work and collect the money. But the ideal situation is hard to find. Using umbrella companies to become their employee and then they pay you using the PAYE scheme is much more the security you will need being the lone ranger as a newly self-employed individual.

Let us know your thoughts and/or experiences of using umbrella companies in the UK.


In the first blog, we learned about the crucial differences between freelancers, contractors and sole traders to recognise who is in need of using Contractor Umbrella companies. Read it again to refresh your memory!

In this second blog, we covered all the legal requirements and To Do’s when it comes to setting yourself up as a limited company in the United Kingdom so that you can use contractor umbrella company services.

In the next one, the third blog of the contractor umbrella service provider series, we tell you exactly how a PAYE umbrella company works. You will be able to learn the following things and much more:

  • contractor umbrella company fee structure
  • invoicing contractor umbrella companies
  • how to choose the most reputed contractor umbrella company

Find out all the great things we shared in the final blog of the series by reading all about it here.