What are the alternatives to setting up a limited company?

Setting up a limited company may not always be the best option to pursue when choosing a structure for your business as it can be expensive, involve more complex and restrictive rules regarding accounts and legal obligations, restrict the raising of capital and lead to a dilution of powers. Fortunately, there are a range of alternatives available.

Umbrella company

Umbrella companies are an excellent option for flexible workers, contractors and freelancers as it is quick and simple to join one. Compared with the hassle and expenses involved with setting up a limited company, working with an umbrella company streamlines the entire process. The company will provide help with IR35 and your tax obligations so you will have the peace of mind of knowing you are fully compliant with HMRC requirements. You won’t have to worry about National Insurance contributions or tax payments as these will be automatically be paid before you receive income directly into your bank account. Basically, umbrella companies make a somewhat laborious and complex undertaking a simple process, freeing up your time to concentrate on other areas of your business.

Sole trader

Setting up a business as a sole trader is another option. That means you will have to operate as an individual, so you will be personally liable for all financial and legal obligations and be responsible if the business loses money. Sole traders have to keep detailed records of the business they conduct and declare everything to HMRC to ensure they are paying the right amount of tax.


Setting up a partnership is similar to operating as a sole trader, but this time the interested parties share the responsibilities. You will share profits and losses, and each partner will be responsible for paying invoices and bills on time and taking care of any losses and any other problems that arise. The arrangement is known as a general partnership. Under English law, several other types of partnerships can be formed, including a limited partnership and limited liability partnership.


There are also some PAYE options available to those that decide running a limited company or acting as a sole trader is not viable. As touched on earlier, umbrella companies will manage your tax affairs and they do this using a pay as you earn (PAYE) system. That means you don’t have to complete tax returns on an annual basis, which really cuts down on the amount of paperwork you need to complete and reduces your personal responsibilities.

It is also possible to work with a recruitment agency that will use its payroll system to process your income deducting what is required by PAYE.

How to decide?

In order to decide on the best alternative to a limited company, weigh up the pros and cons of each option. You can always get in touch with a lawyer or accountant for recommendations based on your specific circumstances. However, correct tax affairs must always be a key consideration and opting for the most advantageous option from this perspective is the best course of action.

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