Sole Trader or Umbrella Company – Which is Best For Freelancers?

If you work as a freelancer, there may be times where you consider contract work to generate more income. Some companies, however, will insist that they can only pay you direct if they are paying you via a limited company.

This leaves the freelancer with a problem if they operate as a sole trader. The solution is to the problem is to be paid via an umbrella company which protects the hiring company from any tax implications of paying direct.

For the freelancer, getting paid by an umbrella company can sound like a reasonable compromise because it offers the protection of employment (you are essentially hired by the umbrella company), and freedom from paperwork and having to calculate and pay tax returns.

The downside, however, is that you will lose control over your income and you will have gained a new paymaster when you sign your agreement.

So using an umbrella company can offer advantages and disadvantages depending on your circumstances.

The same is true if you work on a sole trader basis. You may get the freedom of controlling your own pay, but you also have none of the security of having paperwork taken care of and a guarantee of pay being received when you have worked your hours.