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Why work through an umbrella company?

Working through an umbrella company has recently become an increasingly popular option for contractors, with thousands across the UK choosing this route.

But what are the benefits of using an umbrella company?

From allowing contractors to avoid infamous IR35 legislation and providing contractors with statutory rights to taking care of tax obligations, there are many benefits to using an umbrella company in 2023.

To help contractors find out more, Umbrella Search has compiled this handy guide on the benefits of working with an umbrella company. You can see if this is the right path for you in 2023.

Hassle-free contracting

One benefit to using an umbrella company is that they help to make contracting hassle and stress-free for contractors.

Unlike limited company contractors who have to set up and run their own business dealing with all aspects of tax, invoicing, finances, paperwork, business admin, and client liaison, as well as getting on with the contract at hand, an umbrella company is there to take on all the hard work for you.

Contractors using an umbrella company become employed by their chosen provider. They must submit their time sheets and expense claims, and the umbrella company will sort the rest.

The umbrella company takes charge of invoicing the client, chasing up any payments where necessary, paying the contractor a salary with the correct levels of tax and National Insurance deducted, processing expenses, and dealing with any admin and paperwork that arises.

For this reason, the umbrella company route is widely considered the easier way to contract, removing additional pressures and letting the contractor get on with the contract.

What is an umbrella company?

Tax made easy

As we have mentioned, an umbrella company pays the contractor a salary. It ensures that the contractor delivers the correct tax and National Insurance levels through the pay-as-you-earn tax system.

This means that the contractor benefits from the security of being paid a salary and doesn't have to worry about taking on tricky and time-consuming tax returns and calculations. Instead, the umbrella company sorts this out for them so you can rest assured that you're always up to date with your taxes.

Enjoy statutory benefits

Another advantage to using an umbrella company is that it entitles the contractor to a range of statutory benefits, including holiday pay, sick pay, a workplace pension, and maternity/paternity leave.

This is because the contractor becomes an employee of their chosen umbrella company, meaning they receive these rights in line with all other UK employees. Limited company contractors, on the other hand, can only take advantage of such benefits if they are self-employed.

In practice, if you fall ill or want to take a well-earned break, you will still receive payment when you take time off. This is often considered a significant benefit to contractors, giving them extra security.

IR35 exemption

One reason many contractors choose the umbrella company route is to avoid IR35.

As an employee of their chosen umbrella company, contractors are automatically exempt from IR35, meaning they don't have to consider this when taking on a contract.

This is especially the case since 2017 which saw changes to the legislation come into play in the public sector when it became the responsibility of the client, not the contractor, to determine and declare their IR35 status. Then, in 2021, this was extended to the private sector, to the disappointment of many self-employed contractors.

This means thousands of contractors have been wrongly classified as inside IR35, regardless of the circumstances. The result is that thousands have paid more taxes than they should have. Moreover, 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, meaning one less thing to stress about.

Freedom and flexibility

The final benefit of working through an umbrella company is the freedom and flexibility it affords the contractor.

After all, with an umbrella company, the contractor can choose and pursue whichever contracts and clients they want. This means that your career progression is firmly in your hands and that if you wish to take a break from contracting, you're free to do so. So, if you want to go after that high-value contract, you have the freedom and flexibility to do it.

On the other hand, contractors that work with a PAYE agency are told which contracts they will work on and when. This restricts their career progression and increases the chance that they will end up working on contracts they would have preferred.

This is another reason so many contractors choose the umbrella company route.

Ready to make a move to Umbrella? Umbrella Search is here to help

Now you know the many benefits of contracting through an umbrella company, the next step is to find one that's just right for you.

Thankfully, Umbrella Search is here to help.

By simply filling out some critical details in our contact form, we will analyse your information to provide you with a list of the best umbrella companies for your needs. Whether you have tons of contracting experience or are brand new to it, our friendly and professional team will work hard to get to know your contracting needs to find you the best umbrella company.

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