You’ve probably thought about it more than once. The admin work. The accountant emails. The stress over IR35. Running your own limited company used to feel like freedom, but now it’s become a job in itself. If you’re already thinking of switching to an umbrella company, I’ll walk you through it step by step without the waffle.
No big words. No fluff. Just straight answers and clear actions.
Quick intro: Why make the switch?
Contractors are moving from limited companies to umbrella setups because IR35 rules have made things harder. You’re doing the same job but with more tax stress. On top of that, umbrella companies handle the boring bits — tax, pay, paperwork — so you don’t have to.
Step 1: Should you close your limited company or keep it paused?
You can either close your limited company or make it dormant. If you want to stop trading completely, close it. If you want to keep it for future use, mark it dormant and skip all trading activity.
Closing your company means shutting it down officially through Companies House. You’ll need to file final accounts, pay Corporation Tax, and possibly go through a Members’ Voluntary Liquidation if you’ve got over £25,000 in retained profits. This route is common when you’re walking away for good.
If you’re unsure or might use the company later, just make it dormant. That way, you won’t need to file full accounts each year. You’ll just keep the name and company structure for later, while working under an umbrella company for now. Keep in mind, even dormant companies need to submit basic returns annually.
Step 2: Tell HMRC and Companies House you’re stopping trade
You’ll need to file final accounts, notify HMRC, and close or pause your company officially.
If you’re closing the company, start with your accountant. They’ll help you prepare final accounts and submit the CT600 form for Corporation Tax. You’ll also need to de-register for VAT and PAYE. Once the finances are cleared, you submit the DS01 form to Companies House to close the company.
If you’re keeping the company dormant, submit the AA02 form for dormant accounts and file a confirmation statement every year. Also, let HMRC know you’ve stopped trading by writing to them — they won’t just assume it.
Either way, make sure your company bank account reflects the change. Don’t make or receive payments once you’ve stopped trading. Keep things clean. Don’t leave loose ends.
Step 3: Let your agency or client know you’re switching
You’ll need to update your client or agency if your contract changes, especially for IR35 and payroll rules.
When you switch to an umbrella company, your legal status changes. You’ll no longer be a limited company director; you’ll be an employee of the umbrella company. That means the agency or client might need to change the contract. You’re not issuing invoices anymore — your umbrella handles that.
Sometimes, this also affects the rate. If your old rate was outside IR35, your umbrella rate might be lower because it includes taxes and employment costs. Talk to your agency early and get a new Key Information Document (KID) that breaks down your pay and deductions clearly.
Don’t assume it’s all automatic. Let them know in writing that you’re switching and confirm when the umbrella will take over.
Step 4: Pick an umbrella company that’s clean and simple
Look for a PAYE-compliant umbrella that gives you clear payslips, doesn’t charge hidden fees, and is upfront about deductions.
Not all umbrella companies are equal. Some hide fees inside your payslip. Others promise higher take-home pay using dodgy schemes. Stay away from that. You want a proper PAYE umbrella — no offshore setups or fancy tax tricks.
Here’s what to check:
- Do they show a full breakdown of your pay?
- Are holiday pay and employer costs handled clearly?
- Is the margin flat, or are there hidden extras?
- Do they send your pay weekly or monthly?
You can search the FCSA website for accredited umbrellas. Or just ask for a sample payslip and margin sheet. If they stall or overcomplicate it, move on. You’re not looking for a maze.
Step 5: Sign up and start working under the umbrella
To start, you’ll need to share ID, proof of address, bank details, and your contract. Once set up, they’ll add you to PAYE and you’ll be paid like an employee.
Umbrella onboarding is quick. Most companies have an online form. You’ll upload your passport or driving license, your address proof, and your bank info. They’ll also need a copy of your contract or assignment letter.
After you’re onboarded, your agency will pay the umbrella, and the umbrella will pay you. You’ll get a payslip showing gross pay, tax, National Insurance, student loan if applicable, and the umbrella’s margin.
No more invoices. No more chasing clients. You work, they pay. The umbrella handles everything else.
If you’re new to PAYE after years of limited company life, expect your pay to look smaller. That’s because you now pay tax and NI like an employee, and the umbrella also takes care of employer costs (not from their own pocket — they’re included in your rate).
Common questions people ask when switching
Can I keep my limited company open just in case?
Yes, you can keep it dormant. That way, you don’t lose the company name or structure, but you can’t trade through it while using an umbrella.
If you’re unsure about the long term, pausing is safer. You’ll just need to send basic filings yearly.
What happens to my business bank account?
If you’re closing the company, you’ll need to clear the account and shut it. If you’re pausing it, you can keep it open but don’t use it for any trading.
Keep it clean. No payments in or out if you’re no longer trading.
Do I need to tell HMRC again if I trade in future?
Yes, you’ll need to reactivate the company with HMRC and start submitting full accounts again.
They won’t restart it automatically. You’ll need to register for VAT, PAYE, and tell them the company is active again.
Can I switch in the middle of a contract?
Yes, but you need to agree it with the client or agency. The contract will need to reflect the change in legal status.
Switching mid-assignment is fine as long as everyone’s clear on the paperwork. You’ll stop invoicing and start getting paid by the umbrella. Make sure there’s no overlap.
Wrap up
If running your own company has become more work than it’s worth, switching to an umbrella setup is a smart move. You cut the admin, avoid IR35 stress, and still keep working the same way.
Here’s what you do:
- Decide whether to close or pause your company.
- File final accounts and inform HMRC.
- Let your client or agency know you’re switching.
- Pick a clean umbrella company.
- Onboard, sign up, and get paid.
The whole process takes less than a week if you’re clear on your decision and paperwork. No fluff. No drama. Just focus on the job, and let someone else handle the rest.
If you’re on the fence, pause your company instead of closing it. That way, you can switch back later if needed — no pressure.
Either way, don’t stay stuck juggling tax rules and chasing invoices if it’s stressing you out. You’ve got better things to do.
