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Myths about umbrella companies debunked

At Umbrella Search, we know that there are plenty of myths surrounding working with an umbrella company out there.


To help you cut through the noise and know what information you can really trust, we've complied this handy guide debunking the most common myths about umbrella companies.


Myth 1: Umbrella company contractors can't choose their own contracts


It isn't the case that umbrella company contractors can't choose which contracts they work on.


In fact, umbrella company contractors are solely responsible for finding their own contract work and deciding where and when they take this on.


This is great news for contractors that don't want to be forced into taking on certain contracts, or for those that want to be in full control over their own careers and the directions they take with these. Plus, if you have a dream client in mind, this gives you the opportunity to go after them.


It is the case, however, that PAYE agency contractors don't have the freedom to choose which contracts they work on, which is worth knowing if you are considering this option over umbrella.


Myth 2: Umbrella company contractors are self-employed


It is a false assumption that contractors that work through an umbrella company are self-employed. In fact, the two are very different things. When a contractor engages the services of an umbrella company, they actually become an employee of their chosen provider.


As we have already mentioned, the contractor still has the full freedom and flexibility over their work and which contracts they take on, however they will be employed by the umbrella company which will impact how the contractor is paid.


As an employee, the contractor is put onto the umbrella company's payroll. Rather than being paid directly by the client, the contractor is paid by the umbrella company. Their salary is paid to them at the same time each month or week, and is processed through PAYE before it is paid to them, so tax and National Insurance are deducted.


If a contractor were self-employed, on the other hand, they would be responsible for collecting the payment from the client directly, and once this had been paid the contractor would need to set aside enough to pay tax, filing as self-assessment to declare to HMRC how much they had been paid in income, any expenses incurred and what tax they owe.


For this reason, being paid through an umbrella company is widely regarded as the easiest way and means the contractor doesn't need to worry about often complex tax returns.


Myth 3: umbrella companies are expensive


Contractors will be thankful to learn that this is in fact false.


Umbrella company fees have remained competitive and will only set you back around £25 per week. What's more, the fee is considered as a legitimate expense by HMRC, meaning that it will be taken off your pay before it is calculated for tax, reducing your tax liability.


Contractors that take the limited company route, on the other hand, will usually engage the services of an accountant to help deal with complex business finances, which will cost them much more than they'd have to pay in umbrella company fees.


What is an umbrella company?

Myth 4: umbrella contractors can't claim expenses


Another myth surrounding umbrella companies is that contractors that operate in this way aren't able to claim back expenses. However we're pleased to report that this is not the case.


Even contractors that work through an umbrella company are able to claim back certain expenses that are linked to their work which will be tax deductible. Such expenses are usually in the fields of transport, equipment and accommodation but you can find out more about contractor expenses in our handy guide.  


This is great news for contractors as it means you won't be paying out of your own pocket should you incur expenses necessary for work.


Myth 5: umbrella company contractors don't receive employee rights


As we've mentioned, when you work with an umbrella company you become an employee of the chosen provider. However, there is a misconception out there that you don't receive full employee rights.


Once again we're pleased report that this is not the case.


For example, umbrella company contractors are eligible to receive the same statutory benefits as any other employee in the UK. This means that you can receive holiday pay, sick pay as well as maternity and paternity pay. 


This means that you can rest assured you will still be paid if you can't work for any of these reasons.


What's more, you will also receive a workplace pension as any other employee would, which makes saving for the future much easier.


Myth 6: Umbrella contractors can still get hit by IR35


Luckily for umbrella company contractors, they are completely exempt from IR35, meaning they don’t have to worry about getting caught out.


Because they are employed by the umbrella company, IR35 does not apply to them. This means one less thing to stress and worry about.


Limited company contractors, on the other hand, will have to take IR35 into consideration and ensure they don't get caught out and tangled up in lengthy and expensive investigations.


Think an umbrella company sounds like the best option for you?


We can help. Now that we've debunked some of the most common myths about umbrella companies, you might have decided that working through an umbrella company is the best option for you going forward.


If this is the case, we are here to help. Our team of professionals can work with you to find out what your contractor needs and requirements are, in order to find a company that's the best fit. Whether you're looking for same day payments or need a little extra support and advice, we'll do the hard work to find you the perfect provider.

To get started, simply get in touch with the Umbrella Search team today and take the first step to kickstart your contracting career.



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