Ever Thought About an Umbrella Company

Contractors, Freelancers, Temporary Workers

There are many different terms for those individuals who work on a series of short-term contracts as opposed to being a full time employee of one company.

Being a good contractor is only part of the requirement for sustainable success as a contractor - you also have to manage your back-office. A back-office:

1. Raises invoices - on time every time
2. Has strong bookkeeping skills
3. Completes the right HMRC forms - on time every time
4. Deals with Company House - on time every time
5. Is great at credit control
6. Understands VAT
7. Understands PAYE
8. Is fully aware of all complex legislation relating to running a limited company
9. Enjoys excel spreadsheets
10. Is comfortable with endless form filling

The good news is biros have replaced quills, the jet engines have replaced propellers and emails have replaced telexes. Welcome to your introduction to the fast food of accounting - the umbrella company.

Clarification

"An umbrella company deals with all these administrative burdens and the energy draining nature of paperwork.

"Umbrella companies are specifically designed for professional contractors who may be great at their own profession but bloody useless at Company Law and the minutia of administration.

"If you've decided to be a professional contractor you have two choices as regards the running of your business

1. You can either set up and run your own limited company - which can take months
2. You can register with an umbrella company - which takes minutes, and is cheaper!

"There are advantages of running your own limited company, but an umbrella company is cheaper, more efficient and has a lot less paperwork. A no brainer for most contractors."

An umbrella company takes care of all the paperwork for you

Running your own company means you have to keep records, be responsible for invoicing, maintaining all your expense records, be on top of any laws that affect you.

• Using an umbrella company means you have none of this. The umbrella company takes care of all these bits for you.

The only thing you need to concern yourself with is making sure that your chosen umbrella company has your time sheet each week/month.

Let the umbrella company do the worrying, says Mark Ridgeon:

"Running your own limited company means you have to worry about the intricate tax codes, set money aside for taxes, track your allowable business expenses, and complete monthly and quarterly government returns - and that's just for starters!

• "An umbrella company means you can forget about reading up on the latest tax legislation and focus on your contract.

"Your umbrella company handles the details of contracts, invoicing, credit control, ensures that your correct taxes are paid, and generally takes care of every aspect of administration that keeps you legal as a contractor.

"When you trade through an umbrella company you take advantage of their expertise in tax management. Don't worry about what you can, and cannot, do. Experts are on hand to tell you what is legal and what isn't.

• This gives you peace of mind in dealing with HMRC so that you can relax, and concentrate your contract. An umbrella company will do all this for you, and more.

"So, in summary, a contractor gets all the advantages of a limited company without all the related paperwork."

Is an umbrella company your best choice?

There are pros & cons to both umbrella companies and running your own limited company. Your specific situation can help you with the correct choice.

Paperwork

If you don't like managing administration an umbrella company will take that worry off your mind.

• Running your own limited company means that you will have to deal with all the legal administration, tax calculations and administrative necessities.

If you're ok with detailed paperwork then running your own limited company may be a good choice. If you would prefer to avoid all that hassle then find an umbrella company.

Unsure whether to run your own limited company or use an umbrella company?

If you don't know which option is best for you then it may make sense to register and work through an umbrella company, at least for the first 12 months.

It's easier to leave an umbrella company and then start your own limited company, than do it the other way round.

Your own limited company status

If you work through an umbrella company you can claim business expenses and have no paperwork, but you won't be a director. If need to be a director then running a limited company is the better option.