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PAYE or Limited Company

When freelancing or contracting you must have a legal entity which you can use to provide your services through PSR to the end client.

The two most common options are:

Working through a Limited Company

You may decide to set up and run your own company.  This option would involve taking responsibility for any taxation, accounting and legal requirements of the company.  You may decide to appoint an accountant to help you with the running of the business and a use a lawyer for any legal issues.

Most contractors and freelancers working through a limited company will be the Managing Director and majority shareholder of the company.

Working through a PAYE Umbrella Company

If you decide to work through a PAYE Umbrella Company you will be classed as an employee of the Umbrella Company.

The Umbrella Company will invoice PSR for the services you have provided to the end client.  You will be paid your salary for services completed, less tax and NI deductions (employee and employers NI) and a fee for using the Umbrella Company.

You can normally claim for certain types of expenses relating to the contract.