PAYE Umbrella Companies

Umbrella companies are the gold standard solution for most contractors, having been used for many years now. We know that there are a lot of contractors who still prefer to handle their affairs this way, even though some of our the solutions on our site might offer better returns, albeit the Umbrella we promote have been improved slightly to reflect the very latest tax regulations and which provides significant advantages over the traditional umbrella structure.

How do Umbrella Companies Work?

Why are umbrella companies still the safest option for contractors? Mainly because they have been around for so long and used by so many different contractors. Although they have been around for a lot longer, it was after the introduction of the 2007 Managed Service Legislation that they came into their own. Before 2007 umbrella companies were in the same bracket as composite structures and single person companies but since the new legislation, they have become a great deal more complicated and are assuredly compliant, secure and HMRC friendly. These umbrella companies work on the same basis as PAYE with you paying NI contributions and PAYE but also able to claim back some business expenses. Joining an umbrella company is simple and free to do, as is leaving again whenever you want. And once you join they will have you up and running straight away, they will immediately take over all of your admin and day to day paperwork, including deducting PAYE and NI, sending out invoices and collecting payments. Once you’re signed up the only thing you need to do is hand in a timesheet at the end of the week and the rest is taken care of!

The Benefits of Umbrella Companies

  • Full Statutory Employee Rights – With umbrella companies you will be entitled to the range of employee rights including holidays, holiday pay, maternity leave and sick pay.
  • Full Insurance Cover – An Umbrella company will provide full cover for your legal liability, including public liability insurance and professional indemnity insurance.
  • No More Admin – The primary benefit of umbrella companies for most contractors has always been that they take care of every single element of your admin and paperwork, allowing you to concentrate on working and finding work. No more stressful form filling or invoice chasing!
  • Your Time Becomes Your Own – A consequence of no paperwork is that all of a sudden your time belongs to you again. You can either use this spare time to concentrate on work, or you can use it to give yourself an even better work/life balance.
  • Perfect for Temporary and Short-Term Contractors – If you know you will only be contracting for a short while – maybe just a few months – then joining an umbrella company is the perfect solution. By doing so, you don’t have to worry about dealing with a limited company, accounts and VAT.
  • Decent Rates of Retention – Umbrellas can help you get the maximum tax benefit.
  • Total Compliance – Umbrella Companies are already a very safe vehicle for contractors when it comes to compliance, and they will maintain that compliance while improving the amount of income you retain.
  • Your Own Dedicated Account Manager – You will be assigned your own account manager who will always be there for you at the end of the phone to help with any problems or queries.
  • Join and Leave Easily – It’s very simple to join any of our solutions and just as easy to leave. Unlike other companies, we don’t charge leaving or signing fees.
  • Quick and Easy Access to Your Earnings – You will get your money the same day we get it.

Common Myths and Misunderstandings Surrounding Umbrella Companies.

Umbrella companies are fast becoming the go-to choice for freelancers and contractors but many people who rely on these companies do not understand exactly what they are and the pros and cons relating to each. Some people think they are the same as a Managed Service Company due to the offering of related services. There is a negative connotation about these as people believe that they fall foul of HMRC rules – this is not the case. In fact, there is a great deal of security in using an Umbrella company to manage earnings. The following will clarify what an Umbrella company is and the benefits and limitations of same.

What Is An Umbrella Company?

Umbrella companies act as an intermediary link between clients and contractors or freelancers. The Umbrella Company offers to handle paperwork and related administration for the contractor that will be needed for the contractor, such as payroll and taxation. This allows the contractor to focus their energy on completing the task at hand and not worry about time spent on administration.

How Complicated Is This?

It is quite easy to use the services of an Umbrella company and for this reason, the choice is increasingly being used. An example of how an Umbrella company works for contractors is as follows:

A contractor would choose an umbrella company by Googling for one in their area and dropping a line by email or calling direct. An agreement would be made for the company to provide the contractor with services from that day. After that, all of the contractor’s taxes will be paid by the umbrella company. The contractor would only need to submit expense and timesheets to the umbrella company and relax in the knowledge that their affairs are taken care of. The umbrella company would then invoice for the contractor and collect the payments. This means that any debt collection over old invoices will be done by the umbrella company. The client would pay the umbrella company for the provision of PAYE and NIC management services; these deductions would be made, and the remainder passed on to the contractor.

Who can use umbrella companies?

This service is open to any contractor; in fact, many long term contractors transition from limited companies to umbrella companies due to the in-depth understanding of HMRC affairs that umbrella companies have. It is common knowledge at this stage that certain contractor tax vehicles are being increasingly limited by HMRC such as Managed Service Companies and Employee Benefit Trusts. The only real option is to choose offshore umbrella, PAYE umbrella company or a limited company for this purpose.

There are times when an umbrella company is not the first or best choice for a contractor, such as when they prefer to undertake all the administrative works themselves to keep control or for the ability to claim a wider variety of expenses such as a flat rate VAT scheme. Contractors who earn more than £300 per day could be entitled to various further tax advantages. Contractors who earn less than this amount may not feel the added work is an opportunity cost, as the tax advantages are the same for limited companies and umbrella companies for this tax bracket. There are presently 200,000 people in the UK using an umbrella company.

How do HMRC feel about Umbrella’s

HMRC understands that umbrella companies are firmly rooted, legitimate business vehicles that are used by many and as such there is no problem for contractors who choose to use an umbrella company as they can be relied on for absolute compliance. There is a full compliance and understanding by umbrella companies of all HMRC affairs, including the IR35. In fact, the use of umbrella companies has increased due to the need to be compliant with HMRC and the knowledge that use of one enables a contractor to rest easy in knowing they are being fully compliant. The 2007 Managed Service Legislation specifically determined that umbrella companies do not fall into this legislative category.

Are There Any Other Advantages?

The additional time available to continue working is an opportunity provided through the use of an umbrella company, which can be highly profitable and a much better spend of time for a contractor then filling out invoices and calculating taxes. Income can be maximized through the application and deduction of expenses, such as travel to clients’ offices, food, drink and accommodation; every expense applied acts to reduce tax liability. A major advantage as well is that contractors who work through an umbrella company are considered to be employed rather than self-employed, and as such they can benefit from employment laws such as sick leave and holiday pay.