For many contractors just starting out or looking for a change of pace, deciding whether to use an umbrella company is a common concern. With the upcoming changes to the off-payroll legislation, typically referred to as IR35, this question is all the more important. To see if umbrella companies could be right for you, read on.
In short, an umbrella company is an organisation that employs contractors for a fee. While it may at first seem counterintuitive to pay to be employed, working with an umbrella company can offer contractors a range of benefits that might not ordinarily be available.
Regardless of the work you do, all umbrella companies should work in more or less the same way. The main differences being the margin and any additional perks offered. When you complete a contract for a client, your umbrella company will send the invoice to the client and collect your earnings for you. Deductions will then be made, starting with the umbrella company’s fee, followed by tax and National Insurance contributions. You will then receive your take-home pay in the form of a salary. It is worth noting that as umbrella companies generally deduct their fee first, you can end up recouping some of this cost by paying less in tax.
One of the main attractions to using an umbrella company is that they handle your administration for you. Leading to their reputation as a hassle-free means of contracting. To get started, all you need to do is complete the registration process with your chosen umbrella company, which mostly consists of signing a contract and providing ID and your P45. Getting paid is even simpler, as you only need to send your timesheet at regular intervals. For instance, if your umbrella company pays you monthly, then you would provide it monthly. As umbrella companies will handle your payroll, tax, and client interaction, you will only spend a fraction of your time on administration, letting you get on with your contracts.
When working as an umbrella company employee, you won’t need to worry about your status under IR35 regulations. As you are an employee of a company, with your income being taxed before you receive it, IR35 is not relevant to you. Contractors working through a limited company would have to be careful of these regulations, however, as they are independent.
As you are considered an umbrella company employee, you are eligible for the same benefits as salaried employees. This includes statutory payments such as sick pay, maternity & paternity pay, and holiday pay.
Depending on the umbrella company you choose, you may also be able to receive other benefits. Certain umbrellas will offer employees packages when they register, which can include lifestyle benefits, alongside the aforementioned statutory payments. These can include childcare support and clinical counselling, amongst others. It is important to be aware of what umbrella companies offer so you can make the best choice for your situation.
Umbrella companies can be a great way to try out contracting in large part because they are easy to leave. If you feel like contracting is not for you, or you would prefer to create your own limited company, you need only ask for your P45 and the umbrella will handle the rest. Some umbrella companies will charge a leaving fee or have a minimum duration in your contract. You should make sure to check with them beforehand to avoid any surprises.
Although you are an employee of the umbrella company, they exist to work for you and make managing your business easier. As such, customer service is typically the pride of any umbrella company’s services. With many asserting that they are the best in the business. You should use this common claim to your advantage. Shop around and try to find one that will give you a personal account manager. Things will always go smoother if you have a direct point of contact.
As you will be communicating with your umbrella company regularly, the service must be compatible with you and your situation. Typically, you can get a good idea of what an umbrella company is like over a phone call or in-person meeting, so be sure to speak to someone directly when choosing an umbrella company to work with.
Getting going with an umbrella company is quick and straightforward. All you need is to complete a registration form, provide proof of identity and some personal details, and sign a contract. After signing up, you are ready to get contracting.