4 contractor headaches and how an umbrella company solves them

There are tons of benefits to contracting, from more freedom, flexibility, better pay and the ability to choose which contracts you work on and with which clients.

Although there are many benefits, there are inevitably a few drawbacks that can cause real headaches for contractors.

From chasing late payments to tax returns, the admin and financial side can cause real stress for contractors, making many feel that going it alone isn’t as easy as it seems.

Thankfully, an umbrella company is here to help. Umbrella companies are designed to remove the stresses and strains from contracting, solving the very real problems faced by contractors across the UK.

In this guide, we’ll take a closer look at the 4 biggest problems faced by contractors and how an umbrella company can solve them.

No employment benefits

Many contractors want to live the dream of self-employment, enjoying the freedoms this grants them. However, it’s only when they come to plan a holiday, or fall sick and aren't able to work, that many contractors realise that they’re missing out on some key advantages to being employed, namely sick pay, holiday pay and maternity or paternity pay.

Although contractors might not miss what they haven’t got until they need to take time off, this can drastically impact a contractor’s life, especially if they fall ill for long periods of time, or even if they just need a well needed break.

So, how can an umbrella company solve this?

Well, when a contractor signs up with an umbrella company, they, in turn, become an employee of that provider. This means that the contractor will receive statutory rights which include paid leave for illness, holiday and maternity/paternity leave.

So, if you need to take time off you can rest assured that you will still be paid for the time you’re not at work.

This affords contractors all the freedom and flexibility of contracting, with the security and safety net of employee benefits.

Late payments

Another common problem for contractors who go it alone is late payments.

Unfortunately, many contractors spend time working hard on the project, write up their invoice, only to be greeted with radio silence from the client.

Not only is this frustrating, but it also has a direct impact on the cash flow of your personal finances, as well as making it difficult to pay any suppliers, subcontractors or bills that you owe.

What’s more, there’s often very little that contractors can do in this situation but wait.

While the right of any business, including contractor limited companies, to claim interest on unpaid bills from customers and clients is enshrined in UK and European law and the Late Payment of Commercial Debts (Interest) Act 1998, and amendments in 2000, 2002 and 2013, mean that contractors have a statutory right to claim interest from their clients or agents who don’t pay bills on time, in practice this may turn out to be very time-consuming and incvonvenient.

How can an umbrella company help?

When a contractor opts to work with an umbrella company, they are no longer responsible for invoicing the client directly - this becomes the job of the umbrella company.

Instead, the umbrella company will pay the contractor directly, even if there are late payments from the client, the umbrella company will still make sure you’re paid on time. If there are late payments, it’s the umbrella company’s job to chase these.

This means that contractors no need to stress about late payments, sending payment reminders or cashflow issues. You’ll be paid on time every month.

Tax returns

Contractors know that one task they must complete each year is a self assessment tax return. To prepare for this, contractors must keep detailed records of income, with invoices as proof of these, as well as expenditure incurred on the job, again keeping detailed records of these such as receipts.

To prepare for self assessment, most contractors will have to undergo bookkeeping of their accounts throughout the year or hire an accountant to sort these for them.

When filing a self assessment, contractors will then be told how much tax and National Insurance they owe for that tax year. This means that contractors must have saved enough money from their income for that year to pay the tax bill.

Tax returns can be tricky and time consuming, and can often lead to surprise tax bills for contractors. Contractors will need to get good at bookkeeping and managing their money to ensure they have enough to cover the tax bill when it comes.

If this is a headache you’d rather live without as a contractor, an umbrella company can help.

The umbrella company takes all tax-related stresses off the contractor’s plate.

As the umbrella company pays the contractor through their own payroll, the correct tax and National Insurance deductions are taken before the contractor is paid, meaning no need for you to worry about tax and how much you owe.

What’s more, the umbrella company is always on hand to help with any queries or questions you have when it comes to tax and pay, so you have peace of mind that all your affairs are up to date and that they’re taken care of by the umbrella company.

Admin admin admin for contractors

One thing many contractors don’t consider when going it alone is the amount of admin involved. From  invoicing, record keeping, bookkeeping, filing with Companies House, end of year accounts, VAT returns to self assessment, there’s a lot to do, especially when you’re trying to focus on the contract at hand.

Thankfully, with an umbrella company, all of this admin disappears. All the contractor needs to do is submit their timesheet to the umbrella company and they’ll take care of finances and invoices. There will be no need to carry out tricky tax returns or invoices, it’s all taken care of.

Ready to make the move to umbrella?

If, like thousands of contractors, you love the freedoms that contracting grants you, but aren’t so keen on the other stuff that comes alongside, an umbrella company is for you.

An umbrella company addresses the main issues faced by contractors and takes these off your plate, leaving you to focus on the important thing – the contract you’re working on.

So why not take the first steps to finding the perfect umbrella company today?

FAQs – 4 Contractor Headaches and How an Umbrella Company Solves Them

1. I hate dealing with taxes – can an umbrella company take that stress off my plate?

Yes, that’s one of the biggest advantages of using an umbrella company. They act as your employer and take care of all tax and National Insurance calculations, deductions, and HMRC submissions through the PAYE system. You don’t need to worry about self-assessments, keeping track of invoices, or setting money aside for tax bills—it’s all handled for you.

2. I'm not sure what my take-home pay will be – how do umbrella companies help with income clarity?

Umbrella companies provide clear, regular payslips showing your gross pay, deductions, and net income. Many also offer take-home pay calculators, so you can get a rough idea before committing. This transparency makes it much easier to budget and plan ahead, compared to running a limited company where tax planning can be more complex.

3. I feel exposed working as a contractor – what protections do umbrella companies offer?

When you join an umbrella company, you become their employee. That means you get access to employment rights and protections, such as:

• Statutory Sick Pay

• Holiday Pay

• Maternity/Paternity Pay

• Workplace pension contributions

• Insurance cover (e.g. public liability and professional indemnity)

•  This gives you more peace of mind than working entirely independently, especially during illness, time off, or quieter periods between contracts.

4. I’m overwhelmed by admin and paperwork – does umbrella contracting cut that down?

Definitely. With an umbrella company:

• You submit timesheets (often just once a week).

• You don’t need to chase invoices—they do that for you.

• You don’t file year-end accounts or VAT returns.

•  The umbrella takes care of payroll processing, invoicing, and compliance. This is a huge relief for contractors who want to focus on the work—not the paperwork.

5. Are umbrella companies a good long-term solution or just a short-term fix?

It depends on your circumstances. Umbrella companies are ideal if:

• You're working inside IR35

• You’re doing short-term contracts

• You’re new to contracting and want a simpler setup

•  While they may not be as tax-efficient as a limited company for everyone, many contractors appreciate the ease, flexibility, and reduced risk that umbrella working offers—especially as IR35 rules have become stricter.

6. Can I switch from umbrella to limited company later if I want to?

Yes, absolutely. Many contractors start with an umbrella and then move to a limited company once they gain confidence, build a client base, or begin working outside IR35. The key is to choose a good umbrella company with no long-term lock-ins so you can switch when the time feels right.