Working through an umbrella company has become an increasingly popular option for contractors in recent years. Thousands across the UK are choosing this route due to the numerous benefits it offers.
What are the benefits of using an umbrella company? Well, for starters, it allows contractors to avoid the infamous IR35 legislation. Moreover, an umbrella company provides contractors with statutory rights and takes care of their tax obligations.
To help contractors understand more about working with an umbrella company, Umbrella Search has put together a comprehensive guide on the benefits of using an umbrella company in 2023. This guide will help you decide if this is the right path for you.
Using an umbrella company comes with the benefit of hassle-free contracting for contractors. Limited company contractors have to go through the process of setting up and managing their own business, which includes managing tax, invoicing, finances, paperwork, business administration, and client liaison, all while trying to focus on their contract work. On the other hand, an umbrella company is there to take care of all this hard work, allowing the contractors to solely focus on their contract work without the added stress and hassle.
When contractors use an umbrella company for their services, they become employed by that particular company. They are only required to submit their time sheets and expense claims, and the rest of the work is managed by the umbrella company. This includes invoicing the client, following up on any payments when needed, paying the contractor a salary with the correct levels of tax and National Insurance deducted, processing expenses, and handling any administrative and paperwork tasks that arise.
Therefore, the umbrella company option is widely regarded as a simpler way of contracting, as it eliminates additional pressures and allows the contractor to focus on the project at hand.
Statutory benefits for contractors
As a contractor, you can enjoy several statutory benefits by working with an umbrella company. These include holiday pay, sick pay, a workplace pension, and maternity/paternity leave. Since you become an employee of the umbrella company, you are entitled to these benefits, just like any other UK employee.
However, if you choose to work as a limited company contractor, you will not be eligible for such benefits as you are considered self-employed. This means that in case of illness or taking a break, you won't receive pay for the time off.
These statutory benefits provide contractors with extra security and peace of mind, making it a significant advantage of working with an umbrella company.
Pay-as-you-earn tax system
Paying taxes can be a daunting task, especially for contractors who are already juggling multiple responsibilities. However, with an umbrella company, contractors can breathe a sigh of relief as the company takes on the responsibility of ensuring that they are paying the correct levels of tax and National Insurance through the pay-as-you-earn tax system.
By getting paid through an umbrella company, contractors can enjoy the benefits of a steady salary without worrying about the hassle of complex tax returns and calculations. The umbrella company takes care of all the necessary tax-related tasks, so contractors can focus on their work without the added stress of keeping up with tax requirements.
Many contractors choose the umbrella company route to avoid IR35. By becoming an employee of their chosen umbrella company, contractors are automatically exempt from IR35, which means they don't need to worry about it when taking on a contract. Since 2017, changes to the legislation made it the responsibility of the client, not the contractor, to determine and declare their IR35 status in the public sector. In 2021, this was extended to the private sector, which was disappointing for many self-employed contractors.
Unfortunately, this has resulted in thousands of contractors being wrongly classified as being inside IR35, regardless of their actual circumstances. This has led to thousands of contractors paying more tax than they should have. In addition, many contractors have faced expensive, stressful, and time-consuming IR35 investigations.
The good news is that by opting to use an umbrella company, you can avoid IR35 altogether, which means one less thing to worry about.
Freedom and flexibility
As a contractor, working through an umbrella company can provide you with freedom and flexibility. You have the liberty to choose and pursue the contracts and clients that interest you. This means that your career progression is entirely in your hands. Additionally, if you wish to take a break from contracting, you are free to do so. You can go after high-value contracts without any restrictions, and this makes the umbrella company route an attractive option for many contractors.
On the other hand, contractors that work with a PAYE agency are assigned contracts and have no control over their career progression. They do not have the freedom to choose the contracts they work on, and this can limit their opportunities. This is another significant reason why many contractors prefer the umbrella company route.
Ready to make the move to umbrella? Umbrella Search is here to help
Now you know the many benefits to contracting through an umbrella company, the next step is to find one that's just right for you.
Umbrella Search is here to assist you in finding the best umbrella company that suits your contracting needs. By filling out some key details in our contact form, our friendly and professional team will analyze your information to provide you with a list of the most suitable umbrella companies for you. Whether you're a contracting expert or a beginner, we will work hard to understand your needs and find you the best umbrella company. Join Umbrella Search today, get a quote, and let us do the hard work for you.