Why use an umbrella company?
With remote working rapidly becoming more common than traditional office work, and following a year in which many contracted employees have faced uncertain futures, more and more people are turning to freelancing or contracting. These flexible options allow people to fit their careers around their lives, rather than the other way around, and the recent shift in working habits is just one factor which is driving demand for umbrella companies.
Another is the ongoing updates to the off-payroll working rules (IR35) that prevent contractors from working through PSCs (personal service companies). These came into effect in the public sector in 2017, and are set to be replicated across the private sector from April 2021. Umbrella companies provide an alternative payroll method to PAYE for contractors who are affected by these rules, and may also be a beneficial option for you to consider if you have recently left full-time employment and are looking to move into a new way of working.
What is an umbrella company?
If you are working through a recruitment agency or providing services to a client, an umbrella company acts as your employer for payroll purposes. An umbrella company completes all necessary administration on your behalf to ensure that you will receive payment for your services in a timely manner. The company processes monthly or weekly salary payments, makes the appropriate PAYE tax and National Insurance deductions and transfers the money straight to your bank account.
Many people use umbrella companies to get started in contracting or freelancing as a way to establish themselves without having to go through time-consuming financial processes. Umbrella companies are also a simple and reliable option for contractors who have found that they are inside IR35 and can no longer operate in the way that they were as a result. They provide an easy and reliable alternative to having to register yourself as a limited company in order to continue contracting.
How does an umbrella company work?
Umbrella companies do not replicate the way that PSCs work; income is taxed at source exactly the same as it would be for a permanent employee. You are on the umbrella company’s payroll as an employee rather than the company that you are working for. For providing this service and keeping payroll as convenient as possible for you and your client, the umbrella company deducts a small weekly or monthly margin from your salary payments alongside the tax and NI deductions.
What are the benefits of working for an umbrella company?
There are many benefits to working for an umbrella company rather than providing services and processing payments on your own behalf to clients. These include:
- No need to complete administration. Once you have signed a contract with an umbrella company, completed the registration process and provided the necessary ID, it’s very easy to get paid. You simply complete timesheets and submit it to the umbrella company on a weekly or monthly basis, and the umbrella company then raises an invoice with the client on your behalf.
- They are suitable for all contractor types. Whether you are new to contracting or have found that you are inside IR35, an umbrella company is the most efficient way to get paid for your work. Your assignment can be of any length, and umbrella employment could be useful where a contractor does not want to, or cannot, be a director of a limited company themselves.
- You do not have to worry about being inside or outside IR35. Employees of limited companies are taxed at source and therefore the IR35 rules are not designed to target them. However, it is important to steer clear of tax avoidance schemes and to fully understand what the rules are.
- You are entitled to standard employee benefits. These include statutory sick pay, maternity pay and paternity pay, which will be provided just as if you were a regular employee.
- Umbrella companies provide all the relevant insurance. Throughout all assignments where the umbrella company acts as your employer, you are protected by employers’ liability insurance, public liability insurance and professional indemnity insurance.
- Leaving employment is straightforward. Most umbrella companies do not have a minimum employment period or a leaving fee, meaning that when your work comes to an end it is easy to request a P45 and move on to another form of employment or retirement.
- You will be closely guided through the process at every step. At Contractor Umbrella our Service Guarantee ensures that all our clients receive the exceptional levels of customer service that have made us so trusted. All queries are answered quickly and efficiently.
Speak to us today
We are award-winning experts in contractor payroll and accountancy, and are FCSA Accredited and APSCo Affiliates. If you are interested in working under our umbrella company service, one of our dedicated team would love to talk to you to discuss any questions you may have. Call Contractor Umbrella today on 01206 591 000.