The three main work options available to you as a contractor are:

  • PAYE Umbrella Company
  • Setting up your own Limited Company (PSC)
  • PAYE through the Agency (if available)

The majority of contractors in the past  worked through their own Limited Company/Personal Service Company or Composite company when the tax advantages of working this way far outweighed any other method. With the introduction of IR35 and more recently the Managed Service Company legislation, these tax advantages have been removed depending on whether you fall within the new IR35 "rules" or not. If you fall outside the IR35 rules and are truly self-employed (about 10% of contractors) then you will most likely be better off working as a Personal Service Company (Limited company). For the majority of contractors, an Umbrella Company will be more beneficial.

Over the last 5 years, the Umbrella Company has become the main approach for contractors. Since the 2007 Budget the two main options left to contractors are now the Limited Company and the Umbrella Company. The Chancellor made it clear in his Budget that he would not be touching the PAYE Umbrella Companies but was targeting the Managed Service Company providers as well as Offshore providers.