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  • Writer's pictureUmbrella Search

Is using an umbrella company right for me?

Updated: Feb 8, 2023

Every contractor has to decide whether to work through an umbrella company, limited company, or PAYE agency.

What is best for you will depend on your circumstances and preferences. However, in recent years many have opted for the umbrella company route.

But what does working through an umbrella company look like, and how will contractors know if this is the right option for them?

Umbrella Search has put together this guide outlining everything there is to know about umbrella companies, so you can decide if this is right for you.

What is an umbrella company?

When a contractor chooses to work for an umbrella company, they become an employee of their chosen provider. In turn, the contractor is put onto the umbrella company's payroll.

This means that the contractor pays tax through the PAYE system, the most common in the UK. This is excellent news, as the contractor's tax obligations are always up to date.

The umbrella company acts as the intermediator between the contractor and the client. This means that the umbrella company will deal with tasks such as invoicing the client, collecting the contractor's fee, and any admin and paperwork associated with this.

The contractor merely has to input a timesheet to the umbrella company, and they will sort out the rest.

Why choose an umbrella company?

Working with an umbrella company has many advantages, which can help contractors determine whether this is the right option for them.

The first benefit to working through an umbrella company is that it is the most hassle-free way of contracting. After all, the contractor can sign up with an umbrella company in a matter of minutes.

Following this, the umbrella company will take care of all the tricky and time-consuming tasks that are part and parcel of contracting. This includes taking care of the contractor's taxes, dealing with client relationships, paying the contractor a salary, and dealing with necessary admin and paperwork.

All the contractor must worry about is getting on with the contract at hand.

An additional benefit to choosing an umbrella is that your chosen provider will take care of the contractor's tax and National Insurance.

After collecting the contractor's fee from the client, the umbrella company will process the amount through their payroll. This is great for the contractor as it means the correct tax and National Insurance levels are automatically deducted from their pay.

In turn, the contractor can rest assured that their tax affairs are taken care of and up to date. Unlike limited company contractors, this means that umbrella company contractors don't have the stress and hassle of filing for self-assessment, which is a massive benefit to many contractors.

Operating through an umbrella company is also a great option for contractors looking to apply for a mortgage or loan. This is because staying with the same umbrella company gives the contractor continuity of employment. This means one handy tax code and is crucial when applying for finance.

This is not the case for PAYE agency contractors, on the other hand, who do not have continuity of employment, meaning getting a mortgage or loan is much more difficult.

Another reason a contractor might choose to work with an umbrella company is that this makes them eligible to receive statutory rights. This means that the contractor qualifies for paid sick leave, holiday leave, maternity and paternity leave, and a workplace pension.

Umbrella contractors are also eligible to claim back legitimate business expenses, which is another crucial benefit of Umbrella contracting. This means that the contractor will get tax relief on such expenses.

The final reason that using an umbrella company could be the best option is that umbrella contractors are exempt from IR35.

Whereas limited company contractors have the stress and worry of IR35, umbrella company contractors are automatically immune from the legislation. This is because they are employed by the umbrella company. Therefore the legislation does not apply to them or the contract they are working on.

Is an umbrella company right for me?

Now that we have explored the benefits of working through an umbrella company, contractors can decide whether this is the best option.

If you are looking for easy, hassle-free contracting, then the umbrella route could be for you.

Unlike the limited company route, umbrella contractors need not worry about tricky taxes and finances. Unlike PAYE contractors, they will benefit from being able to claim for expenses and the continuity of employment.

If like the thousands of contractors out there, you decide this is the right path for you, you will now need to find the best umbrella company out there.

Thankfully, Umbrella Search is here to help.

Are you ready to find the best umbrella company with Umbrella Search?

Umbrella Search makes it quick and easy for contractors to find an umbrella company that's the perfect fit for them.

We take the guesswork out of choosing an umbrella company, comparing hundreds of companies, and showing you only the ones that are an excellent fit for your contracting needs.

We will show you an easy-to-digest list of the most suited companies for you, taking the time and hard work out of finding an umbrella company.

We make it easy for every contractor to cut through the noise to find a company that's just right for them. Head to our website and input your details to give it a go.


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