Umbrella Company Q n A

In simple terms, "What is an umbrella company?"

An umbrella company acts as your employer while you're working as a contractor. It enables you to enjoy the best of both worlds: a higher rate of pay than as a permanent employee yet with all the benefits of working through a big company. Things like sick pay and insurances.

Is the contractor better off?

Yes, if you use an umbrella company. You'll get the freedom & flexibility afforded by contracting plus all the benefits and convenience of being an employee.

What are the financial benefits, for a contractor?

There are both financial and time management benefits of working through umbrella companies. Firstly you're usually entitled to a higher rate of pay due to the agency uplift (normally provided by the agency because they do not have to pay your Employer's National Insurance - worth 13%). Secondly you can offset expenses that are (wholly and exclusively) related to the work that you do against your tax.

Can contractors claim these expenses?

In all instances expenses are within HM Revenue & Customs guidelines. Expense payments will usually be factored in at the same time as your salary payments. Most common expenses are travel, subsistence (lunches) and phone calls.

How is the contractor's take-home pay affected?

Your business expenses decrease your taxable salary by the equivalent amount and so reduces your PAYE and NI taxes. Contractors even get a higher net pay!

What are the 'time' benefits of using an umbrella company?

The time management saving and satisfaction comes through the umbrella company service that ensures all your tax payments are made. The umbrella service also covers you with Public Liability and Professional Indemnity cover.

Some umbrella companies are able to fast track your National Insurance applications if required.

Your umbrella company will then issue invoices on your behalf, collect payments from your agency/client, pay your PAYE tax and NI contributions to HM Revenue and Customs and then pay your net pay straight into your personal bank account.

Why not just set up your own limited company?

Because an umbrella company is the easiest, most simple way and cheapest method to go contracting these days. You get this fantastic service but there are none of the administrative and regulatory hassles associated with self employment or running your own company. It is that simple! And you even get a higher net pay!