Why you need to operate via a Limited or Umbrella Company

Why you need to operate via a Limited or Umbrella Company

Whilst becoming a sole trader is a simpler and quicker way to start trading, it often isn’t a viable option for contractors. The far better alternatives are either setting up their own limited company (click here to discover how to go about this) or by joining an umbrella company (click here to see our guide on umbrella companies).

As a rule, Fielders (and the vast majority of clients and agencies) cannot work with a sole trader. This is due to the fact that, working through an agency like us (as a sole trader) would afford employment rights to the contractor and also could be construed to HMRC as employment. As such, if you were investigated by HMRC and you haven’t paid the correct taxes, Fielders could be held liable as we could be seen as your employer. In order to protect ourselves from this possibility, we require our engineers to go through an Umbrella Company or their own Limited Company. This is because the contracts are drawn up between the agency and your company, rather than with you individually, which removes the risk of us being held accountable.

Operating as a sole trader would also have downsides for the contractor as well as any potential agency. Sole traders have virtually unlimited liability, which essentially means that your house and other personal property and/or assets are potentially at risk of legal action by a client. By operating through a Limited Company or Umbrella Company, the contractor’s personal assets are far safer than if they worked as a sole trader.

If a contractor has a genuine reason why they could/would not want to have their own Limited Company (such as being deemed unfit for or disqualified from directorship of a company) the contractor still has the option to join an Umbrella Company and find work via that route. It must be highlighted however, Umbrella Companies are very unlikely to be as tax efficient as having your own Limited Company.

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