When it comes to how a contractor operates, they can choose between a limited company, PAYE agency or an umbrella company. One of these options – umbrella company – has become an increasingly popular choice for thousands of contractors in recent years.
After all, there is a wide range of benefits to using an umbrella company, which is why it's no surprise that so many choose this route.
To help you see if this is the best option for you, Umbrella Search outlines everything you need to know about why you should use an umbrella company and the benefits of doing so.
Statutory Benefits
One significant benefit to operating through an umbrella company is that umbrella contractors qualify for statutory benefits.
As the contractor is an employee of the umbrella company, they are eligible to receive benefits that include paid holiday leave, sick leave, maternity leave, paternity leave as well as a workplace pension.
This means that if you want to take a well-earned break, or need time off due to illness, you will be covered financially. This is considered a significant safety net to many contractors and means that these costs don’t have to be covered out of the contractor’s own pocket.
This is in contrast to limited company contractors who have to cover these costs themselves as they do not qualify for statutory benefits.
Stress and hassle-free contracting
Another main benefit to contracting through an umbrella company is that they take on the stress and hassle of running a business for you, meaning you only need to get on with the contract and projects at hand.
Whereas a limited company contractor must set up and run their own company, doing the paperwork, accounts and admin that are part of this, the umbrella company contractor merely submits timesheets to the umbrella company that takes care of the rest.
The umbrella company will process the contractor’s expenses, invoice the client and do any other paperwork required on behalf of the contractor.
For this reason, umbrella companies are widely considered to make contracting a whole lot easier and less stressful.
As we have just mentioned, an umbrella company takes care of tricky and time-consuming tasks for the contractor, and one of these is their tax obligations.
As the contractor’s employee, the umbrella company pays the contractor a wage.
Unlike a limited company contractor that gets paid their fee and must submit a self-assessment tax return annually which can often be tough and energy-intensive, an umbrella company takes care of the contractor's tax obligations for them.
By paying the contractor a salary, the umbrella company processes the contractor’s pay through the PAYE tax system, working out and deducting the correct levels of tax and National Insurance and then paying the contractor the correct amount.
This means that umbrella company contractors don’t have the stress and worry of working off-payroll and having to file for self-assessment, as this is all taken care for them.
Be IR35 exempt
Another great benefit to working through an umbrella company is that they take away any chances that the contractor will get caught out by IR35.
IR35 is the legal means of establishing whether self-employed workers such as contractors are working as 'disguised employees' in order to avoid paying the correct levels of tax and National Insurance.
IR35 is a legitimate concern for limited company contractors, especially since reforms were introduced to the legislation in April 2021.
However, the great news for umbrella company contractors is that they are totally exempt from IR35. This is due to the fact that they are employees of the umbrella company, meaning IR35 simply doesn’t apply to them.
Enjoy full flexibility and freedom
An umbrella company takes on the tricky tasks that come with contracting, such as running a business and keeping on top of accounts, whilst at the same time granting contractors full freedom and flexibility over their careers.
Unlike PAYE agency contractors, who are told which contracts they will work on, with which clients and when, umbrella company contractors have total control over their careers.
This means that if you want to head in a certain direction, or want to go after that dream contract with a high value client, you are free to do so. As an umbrella contractor, you can focus on developing your career whilst the admin is taken care of for you.
Think the umbrella route sounds like the best fit for you? Let Umbrella Search help with the next steps.
Having read out guide on why to use an umbrella company in 2023, if you have decided that going umbrella is the best decision for you, we are here to help you take the next steps.
With our comprehensive search capabilities, we can help you find the right umbrella company that aligns with your requirements.
At Umbrella Search, we understand the importance of finding a reliable and efficient umbrella company to handle your payroll and tax obligations.
We have helped thousands of contractors across the UK find their perfect match, ready to find yours?
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