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Ltd or PAYE?

In April 2019 the rules around off-payroll working are due to change (IR35 regulations), this will shift the responsibility of compliance from the contractor to the end user (client). It is well worth understanding these changes by reading our article in the IR35 section.

Getting Setup

Supplying your services as a contractor means you are a casual worker, hired for a non-permanent job or working to deliver a specific project within an agreed timeframe. Be it for two days or two months you will need to consider how you will supply your services and be paid by your end client.

Ltd or PAYE

At Frame 25 there are 2 types of engagement. These are frequently determined by the end client, who will classify their role requirements as being within or outside of IR35. This will mean contractors working inside IR35 need to be on a payroll (PAYE), meanwhile contractors supplying their services to projects deemed outside of IR35 can supply their services via a payroll or via a LTD company.


Inside IR35

Suitable for contractors looking for a UK-based payroll solution, or those working on assignments deemed inside IR35

Our sister company PAY 25 offers payrolling for Frame 25 contractors.

Becoming an employee of Pay 25 and joining the payroll means you will be taxed through a standard PAYE scheme.

This means employees pay tax at source.

On behalf of the contractor, PAY 25 will issue invoices, receive payments and calculate all income tax and national insurance deductions. It will then pay all net earnings into the contractor’s personal bank account and issue a payslip to confirm all gross/net transactions.

Working through PAY 25 carries none of the IR35 risks/responsibilities that can affect Limited companies.

We don’t use loan schemes or enable elaborate expense claims.

National Insurance contributions are deducted as a percentage of earnings, this percentage is identical for all companies.

At PAY 25 we take compliance seriously, our payroll is UK based and run by Chartered Accountants.


  • Fast and easy registration- be ready to work in 24 hours.
  • Same day payments- we offer same day payments as standard, for no additional fee.
  • Employee Benefits– there are many benefits available to you as our employee including our Group Pension Scheme, Contractor Mortgages, and much more.
  • Flexible Limited Company accountancy- you can transfer to a Ltd Company engagement when Ltd Co Employment better suits or your assignment sits outside IR35.
  • Enjoy Discounts and Financial Advice - our team can offer discounts and expert advice for a number of accountancy issues including discounted self assessment tax return service via Cube Partners. Discounts to platforms and tooling including, Xero, Receipt Bank.

More information can be found at the PAY 25 website.

Ltd Company

The Limited Company option is the most common option undertaken by individuals who are committed to working in a freelance/contract position and are long-term working on projects outside of IR35.

Owning and operating a Limited company allows contractors to be in complete control of their business affairs. It provides the most tax efficient way of managing income and particularly suits individuals deeming themselves to be ‘career contractors’.

The limited liability structure of the company also affords protection to the contractor against the company’s debts if it were ever to become insolvent.

To take advantage of this option, the contractor must incorporate a Limited company and this must have a Director / shareholder / employee structure. A business bank account must also be established to facilitate payments in and out of the company.

Given the large amount of administration that Limited companies need to handle and comply with, a qualified Accountant should also be appointed.

To support the work carried out by the Limited company, it will receive a Contract for Service from the recruitment agency / client organisation relevant to the assignment and services it has undertaken.

The Limited company will raise invoices at agreed intervals and will receive gross payments directly into the business bank account.

The Limited company will subsequently make payments to Directors / employees that are net of statutory deductions and will adhere to HMRC return dates in respect of income tax, national insurance, corporation tax and VAT (if VAT registered).

Legislation must also be considered, as freelance contractors must be able to prove their employment status. IR35 advice is crucial and must be obtained from employment law experts.


Ability to claim business expenses

Limited Liability protection

High Setup fees

Admin burden – eg. company tax returns in addition to personal tax returns

Increased accountancy fees

We recommend a trusted accountancy service.

Self Employed?

Why Can’t I Remain Self Employed?

A lot of contractors ask us this question.

Essentially HMRC want to stop contractors and self employed people from being engaged by companies when they are completing an identical role to a permanent member of staff.

This can be viewed as ‘disguised employment’ as the company is therefore avoiding paying NI and PAYE contributions for the worker.

Having a direct relationship with a self employed worker rather than a Ltd Company brings a number of risks to the client and agency.

Both can become liable for unpaid PAYE and NI contributions even if the self employed worker has claimed these are paid directly to HMRC.

This is why we choose to only engage the services of Ltd Company/PAY25 contractors for non-permanent work assignments.


What is an Umbrella Company?

An umbrella company is a PAYE provider and acts as an employer for contractors on temporary contracts, typically working through a recruitment agency.

An Umbrella company acts as an employer for contractors on temporary contracts, typically working through a recruitment agency. It serves as a single employer throughout multiple contracts – contracts are between your clients and the Umbrella company, which pays you as an employee through the PAYE system.

The Difference between an Umbrella and PAY 25

An Umbrella typically charges anything between £15-25 per week to each employee.

PAY 25 is free for employees, we do not charge fees to the worker.

Dangers of using Umbrellas

Due to the fact expenses can no longer be claimed, a number of Umbrellas compete to get contractors to sign up by using attractive headlines like - ‘guaranteed 90% take home pay’.

Simply put, this scheme would be tax evasion.

A number of umbrella companies have also used loan schemes to ensure a high net take home for the contractor.

Contractor loan schemes (or, as the Government calls them, disguised remuneration arrangements) take many forms – but the underlying structure is that a freelance or contract worker signs a contract of employment with an employer or EBT (employment benefit trust), usually located outside mainland UK jurisdiction. The employer then pays the contractor in the form of tax-free ‘loans’ – which, although appearing as loans on paper, are never expected to be repaid. In return, the scheme provider takes a percentage of the contractor’s income as an ‘administration fee’.

Since the rise of contractor loan schemes HMRC has taken decisive action against users of such arrangements – retrospective legislation was introduced covering transactions as far back as 1999, levying charges of up to 100% of tax avoided (as calculated by HMRC) on the individuals caught in the net.

We have also seen a number of new schemes that use annuities in a similar way. We would expect HMRC to focus on these in the future.

Warning signs include, use of loan schemes, being paid via annuities or an offshore entity


Prior to April 2016, it was possible for Umbrella employees to utilise a wide variety of expenses to reduce their tax bill. By far the most popular expenses were travel and daily meals (these were known as subsistence expenses). Other common expenses, included:

  • Mobile phone
  • Accommodation
  • Clothing
  • Training
  • Subscriptions
  • Equipment

However, effective as of that date, HMRC legislation came into effect restricting the claiming of these expenses for any contractor deemed to be operating in a manner analogous to that of a permanent, full-time employee. The test applied to determine if this was the case was that of supervision, direction and control (SDC).

This brings tax treatment of contractors in line with those of permanent employees, who are unable to claim the costs of ordinary commuting or meals purchased while at work as an expense on their tax returns. In a nutshell, no “compliant” umbrella company is able to process non-chargeable expenses for tax relief purposes.

Whereas Umbrella companies were previously able to allow contractors to claim many expenses in addition to travel and subsistence, this is no longer the case. Expenses can still be paid – but these must be approved by your recruitment agency and paid over in addition to your normal daily or hourly pay rate. This matches the treatment that permanent, full-time employees can expect – expenses must be submitted, approved and reimbursed on top of salary. These are known as chargeable expenses.

It is worth noting that expenditure incurred solely for the purposes of your work can still be claimed on a tax return through HMRC – for example, if you’re required to purchase tools, uniform or equipment in order to work, you can still claim tax relief on these at the end of the year even if your engager won’t cover the cost.

PAY 25 offers a reduced cost Self Assesment tax return service, for PAY 25 employees.


At Frame 25 we do not recommend any Umbrella companies.

Why don’t we work with Umbrellas?

We started PAY 25 to ensure we can oversee and control the compliance of our supply chain.

We pride ourselves on paying our contractors quickly and accurately whilst ensuring none of our contractors or clients are put at risk through non-compliance.