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Umbrella Companies

Umbrella Companies Umbrella companies are ready-made invoicing vehicles that remove the administration, cost and hassle that exist for people who prefer to freelance or contract. In other words, an Umbrella Company allows contractors to contract without the need to operate their own Limited Company.
With an Umbrella Company, the contractor becomes an employee of the company and is paid a mixture of salary, expenses and pensions. Contractors do not become a director or shareholder of the Umbrella Company and all the income is paid out via Schedule E. IR35 does not come into the equation.
This page is an explanation on PAYE Umbrella Companies only.

How did Umbrella Companies come about?

IR35 by the government in 1999. IR35 was introduced to tackle the low 'tax revenue' stream experienced by HMRC as a consequence of contractors operating through Personal Service Companies.
Umbrella Companies remain a viable choice for contractors due to the convenience they provide and the fact that with all the new taxation legislation currently in place, the tax advantages that once existed for contractors using Personal Limited Companies have now been removed.
Another reason is that many agencies do not have their own PAYE payroll system, so they will outsource their payroll needs to an Umbrella Company.

What services do Umbrella Companies provide?

Umbrella Companies From start to finish the contractor gets to focus on what is important while the Umbrella Company deals with all administration, taxation and accountancy issues that arise.
The Umbrella Company handles the agency and/or client on behalf of the contractor, from the word 'go'. Starting with the contract, the Umbrella Company will ensure that all legal issues have been covered and that the interests of the contractor are met.
As regards the agency or client, the Umbrella Company will then handle the collection of timesheets, processing of invoices and collection of monies.
As regards the contractor, the Umbrella Company will guide the contractor as to what expenses they can and cannot claim, thereby allowing the contractor to enjoy the highest rates of take home pay legally allowable under a PAYE system.
Umbrella Companies cover the contractor with all the necessary insurances required in today's contracting environment, providing peace of mind that in the event of some calamity, both the contractor and agency are covered.

What are the advantages of using an Umbrella Company?

For contractors, Umbrella Companies are the definition of convenience. See above for the full range of services they provide to contractors.
In today's IR35 contracting environment, Umbrella Companies are as tax effective as any structure that can be used. They are also the lowest risk option around.
With an Umbrella Company, the freelancer is covered by numerous insurances for likely unforeseen events. This will be built into the cost of the service.