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  • Writer's pictureUmbrella Search

Is it worth using an umbrella company?

With the new year upon us contractors may be taking stock and planning the year ahead. For thousands of contractors, the question of whether to use an umbrella company is at the top of the list.   

After all, it’s well known that umbrella companies provide an easy way to work, taking away the need for the contractors to worry about running a limited business, dealing with finances and taxes and getting caught by IR35, all things that limited company contractors have to deal with.

So, if you’re wondering whether it is worth using an umbrella company in 2024, Umbrella Search is here to help. In this handy guide we look at whether umbrella companies are really worth all the fuss, so you can make a well-educated decision that’s just right for you.

What are the advantages of using an umbrella company?

As we’ve already touched on, it’s well known that there are several advantages to using an umbrella company. It’s no surprise they’ve become increasingly popular in recent years.

Let’s take a look at some of the benefits of operating through an umbrella company:

No IR35 worries

One of the main reasons many contractors consider using an umbrella company is to ensure that they don’t get caught out by IR35.

IR35 is a piece of legislation that was introduced to stop workers such as contractors from claiming to be self-employed but working more like employees. IR35 targets these so called ‘disguised employees’ who benefit from the tax advantages of working in this way, but in actual fact work more like employees.

IR35 has had a detrimental impact on thousands of contractors across sectors, many of whom have been falsely classified under IR35. This has led to thousands of contractors paying incorrect levels of tax, not forgetting the thousands who have come under timely, stressful and expensive investigations.  

It’s not all doom and gloom however, as contractors that opt to work through an umbrella company will be automatically exempt from IR35. This means you don’t have to worry about your IR35 classification or coming under investigation, giving you one less thing to stress about.

Welcome to hassle-free contracting

Most contractors who choose to work through a limited company will quickly find that they have many plates to juggle. Not only do they have to concentrate on working on the contract at hand, they also have to set up and run their own limited company, deal with all aspects of finances including personal and company tax returns, deal with paperwork and admin and organise invoicing the client and chasing any late payments.

Many contractors, however, want the benefits of contracting without having to run their own business. That’s where an umbrella company comes into play.

One of the many benefits to umbrella contracting is that it offers a hassle-free, easy way of contracting. Within a matter of minutes contractors can sign up to their chosen umbrella provider and once registered, the umbrella company will take care of a range of key tasks on the contractor’s behalf.

This includes but isn’t limited to invoicing the client, organising contractor insurance, dealing with paperwork, submitting expenses, dealing with tax and National Insurance and pay.

This frees up more of your precious time to focus on the contract.

What is an umbrella company?

Finances made easy

As we have mentioned, an umbrella company will take care of the contractor’s finances for them. Considering that tax and finances can be tricky and complex, this is great news for umbrella contractors.

A limited company contractor has to invoice the client, make sure payments are made in a timely manner to ensure good cashflow, submit yearly company accounts, pay corporation tax and submit a self-assessment tax return. An umbrella company contractor's finances are, on the other hand, plain sailing.

The contractor simply submits their timesheet to the umbrella company outlining the number of hours worked, who will then invoice the client and make sure the invoice is paid on time.

What's more, the umbrella company puts the contractor on their payroll. This means that when the umbrella company pays the contractor, the correct levels of tax and National Insurance are deducted from their pay. Paying the contractor through this PAYE (pay-as-you-earn) tax system means that the contractor is always up to date with how much tax and National Insurance they owe to HMRC.

That means no worrying about business and personal tax returns or saving enough of your pay to cover a tax bill at the end of the year.

This is considered a significant benefit to umbrella company contractors as it takes away the burden of having to deal with the financial side of contracting and running a business.

Enjoy statutory benefits

Another benefit to using an umbrella company is that your chosen provider becomes your employer, in turn meaning that you benefit from receiving statutory benefits.

This means that contractors are eligible to claim holiday pay, sick pay, maternity and paternity pay and a workplace pension.

Again, these are benefits that limited company contractors do not qualify for. That means if they fall ill, need to go on maternity/paternity leave or just want to take a break, they will have to pay for this out of their own pockets.

Umbrella contractors, on the other hand, can relax with the knowledge that if they want to go on holiday, or unexpectedly fall ill, they’ll still be paid for their time.

Ready to find an umbrella company that’s just right for you?

Now you know what the advantages of operating through an umbrella company are, you will likely want to know what the next steps are to sign up with one.

Although it’s super easy to sign up with an umbrella company, you will first want to find one that’s a great match for you. After all, there are lots of umbrella companies out there, so you will need to make sure you pick the best one.

That’s where Umbrella Search can help. We will work with you to find out what you’re looking for from an umbrella company to guide our research into finding one that’s the best fit for you.

Get in touch with our friendly team now and take the first steps to making your contracting life a whole lot easier in 2024.

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