Whether you’re looking to avoid infamous IR35 legislation or get away from tricky tax calculations, there are many reasons contractors choose the umbrella company route.
In this guide, Umbrella Search takes a look at the range of benefits to working through an umbrella company, so you can decide whether this is the best route for your contracting career in 2024.
Become an employee
Contractors that sign up with an umbrella company become an employee of their chosen provider.
This is of great benefit to the contractor as it means that they receive a range of employee benefits, but still have the freedom and flexibility of choosing their own work, which client they work with and when they take the work on.
This means the contractor is afforded a level of security whilst also being able to peruse their own career interests and goals.
The main benefits of being employed by the umbrella company includes:
- Receiving statutory benefits
- Receiving a salary
- Being paid via PAYE meaning no tax returns
- Admin and paperwork including invoicing and expenses taken care of
- Insurance cover provided
Be paid for your time off
As we've just mentioned, being an employee of an umbrella company means that contractors benefit from statutory benefits.
This means that contractors receive sick pay, holiday pay and maternity or paternity pay. Again, this provides contractors an added layer of security if they can’t work due to any of these reasons.
Any limited company contractor will know this is a great benefit, as should a limited company contractor need to take time off if they're ill, starting a family or just need a well-earned break, they won't be paid.
An easier life
Contractors that work through their own limited company by default become a company director. This not only means that they have to deal with all the paperwork and admin that arises when working with the client, they must also deal with all aspects of invoicing and finances, paying themselves, managing cashflow, filing company accounts and sticking to director duties.
Umbrella company contractors, on the other hand, don’t have to worry about any of that.
That’s why umbrella company contracting is considered an easy and hassle-free way of working.
An umbrella company merely submits their timesheet to their chosen umbrella company who will then deal with the rest.
The umbrella company deals directly with the client, collects the money owed from them and paying the contractor a salary. This takes us on to our next point.
Forget about tricky tax calculations
Due to the fact that the umbrella company pays the contractor a salary through PAYE, the contractor doesn’t need to worry about any tricky tax calculations.
The contractor will receive their pay each month with the correct levels of tax and National Insurance deducted, simple as that.
This means no self-assessment tax returns and no filing company accounts and paying corporation tax like limited company contractors.
Insurance is covered
The umbrella company will cover the contractor with the correct levels of insurance they need to carry out the contract. After all, every contractor needs professional indemnity insurance, employer’s liability insurance and public liability insurance if they work with the public. What’s more, some contractors require additional types of insurance depending on the industry and environment they operate in.
Forget about IR35
A great benefit to contracting through an umbrella company is that it means contractors can forget about infamous IR35.
When a contractors opts to work with an umbrella company they become an employee of their chosen provider. In turn this makes them automatically exempt from IR35.
This is great news for umbrella contractors, considering that in recent years thousands of contractors have been wrongly classified as being inside IR35, meaning they have paid more tax than necessary. What's more, many contractors have come under lengthy investigations.
IR35 has been especially problematic for limited company contractors since 2017 when IR35 was introduced in the public sector, and furthermore in 2021 when it was extended to the private sector. From then on, it became the responsibility of the client and not the contractor to determine and declare their IR35 status.
For more information on IR35 and the impacts, check out our complete guide to IR35 for contractors for more information.
Freedom and flexibility
Finally, contractors working through an umbrella company can expect to enjoy a great degree of freedom and flexibility.
As we have mentioned, when working through an umbrella company, although it grants the contractor a greater degree of security, they are also free to choose where and when they work.
Being able to choose which clients they work with, which contracts they take on and when they work means that contractors can be in control of their own career progression. This means that if you want to go after those high-value contracts you’re free to do so.
Umbrella Search is here to help you make the move to umbrella
Having read about the many benefits of contracting through an umbrella company, if you're considering taking the leap and signing up with a provider, Umbrella Search is here to help.
By getting in touch with our friendly team, we will work closely with you to find out your contractor needs and requirements. Once we know what you’re looking for from a provider, we will do our research and provide you with a list of the best umbrella companies for you.
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