As a contractor, you have many factors to consider when setting up your business. Choosing the proper structure is essential. Do you want to be a sole trader? A limited company or umbrella?
The answer may not be clear-cut. It depends on your circumstances. In this guide, we’ll explain everything you need to know about umbrella companies to decide what’s right for you.
If you’re a contractor, you can choose to work through an umbrella company instead of setting up your own limited company. Working through an umbrella company has several advantages and disadvantages, which we’ll discuss in more detail below.
Things to Know About Umbrella Companies:
- An umbrella company is a company that acts as an employment agency for contractors.
- Umbrella companies are also known as payroll services or employment intermediaries.
- Instead of forming your own limited company as a contractor, you can opt to work through an umbrella organization.
- Working through an umbrella company has several advantages and disadvantages.
- Advantages of working with an umbrella company include not having to set up your own limited company, not having to deal with paperwork or accounting, and having access to benefits such as holiday pay and sick pay.
- Disadvantages of working with an umbrella company include having to pay fees to the umbrella company, being subject to the umbrella company’s rules and regulations, and not having as much control over your own business.
- Before you work with an umbrella company, ensure you understand all the pros and cons.
- Talk to other contractors with experience working with umbrella companies, and get advice from a qualified accountant or solicitor.
- Ensure you understand the contract you’re signing with an umbrella company, and don’t hesitate to ask for clarification if anything is unclear.
Advantages of Using an Umbrella Company
There are several advantages to using an umbrella company, including:
- You don’t have to set up and run your own limited company. This can save you time and money.
- An umbrella company is responsible for paying your taxes and National Insurance contributions (NICs). This means you don’t have to worry about filing your tax return or making estimated tax payments throughout the year.
- Umbrella companies often offer additional benefits, such as holiday pay, sick pay, and maternity/paternity leave.
Disadvantages of Using an Umbrella Company
There are also some disadvantages to using an umbrella company, including:
- You may be able to claim fewer expenses than if you were running your own limited company. This could increase the amount of tax you owe.
- You may have less control over your finances than if you were running your own limited company. For example, you may be unable to choose when you receive payment or how much money is deducted for taxes and NICs.
- You may have to pay a fee to use an umbrella company’s services.
Umbrella companies provide several advantages and disadvantages for contractors. The most important thing is to weigh the pros and cons carefully to decide if using an umbrella company is the right choice.