A guide to Umbrella Companies

Over the last 10 years, the popularity of umbrella companies has grown rapidly thanks to their ability to offer a simple solution to many contractors. With so many umbrella companies available, we take a close look at what they do, the benefits and how you can compare providers.

What do umbrella companies do?

An umbrella company is a UK limited PAYE company that acts as a third-party employer on behalf of its contractor customers. A contract exists between the contractor and the umbrella company, with the umbrella company providing a PAYE payroll service. The contractor essentially becomes an employee of the umbrella company and is paid a salary after the correct PAYE deductions are removed.

As a contractor, any legitimate expenses incurred as part of your work can be reclaimed. However, if your work falls under Supervision, Direction, and Control (SDC) rules, you will not be able to reclaim any costs relating to subsistence and travel.

How does an umbrella company work?

Once you secure a role as a contractor, you can sign a contract with an umbrella company that acts as your employer. As part of your contracting, you will need to submit signed timesheets that show how many hours you worked during the pay period. The umbrella company will then bill the company you are contracting for and prepare your payroll.

You will receive your take-home pay, minus any deductions for taxes, pension contributions and the fee charged by the umbrella company. The umbrella company issues a payslip that will detail these taxes and contributions, in addition to any expenses you claimed as part of your contracting. At the end of the tax year, any remaining expenses can be reclaimed against your income tax.

What are the benefits of umbrella companies?

There are many benefits for contractors who join umbrella companies, especially as it is often faster, simpler, and cheaper than forming your own limited company. Umbrella companies handle everything from invoicing to payroll so that you can concentrate on your work with the peace of mind of knowing that the admin is taken care of.

Umbrella companies do charge a fee; however, this is deducted from your taxable income so that you benefit from tax savings. In addition, as a PAYE employee of the umbrella company, you receive statutory benefits such as holiday pay and sick pay.

Which is the best umbrella company?

There are many umbrella companies to choose from, and we pride ourselves in helping you compare the best. The best umbrella companies are focused on ensuring the contractors they work with receive the best possible take-home pay, whilst providing a fully compliant, secure, and hassle-free service.

We canvas the best UK umbrella companies which specialise in contractor pay, which means they are well equipped to navigate legislation such as IR35. We are proud to assist all industries, from IT contractors and locum nurses to agency doctors and project managers. To request your no-obligation take home pay illustration, please contact our professional team today.

 

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