Once upon a time, contractors were almost certain to start a Limited Company as a way to run their operations. Over the past decade or two, however, the concept of using an umbrella company has become increasingly common.

But is the idea of becoming an ‘employee’ of a company that handles the payments related to your contractor jobs one that can work for you? Let’s take a look below.

The Advantages Of Using An Umbrella Company

There are hundreds of umbrella companies out there, which should give you a fantastic opportunity to find a suitable solution. When you do, the following benefits can be gained.

  • You can be up and running the very same day, especially once you’ve decided on which umbrella company to use.
  • The umbrella company takes care of National Insurance Contributions and income tax on your behalf, meaning the salary you receive is yours (as would be the case with normal employment).
  • Using an umbrella company allows you to bypass the time-consuming paperwork linked to filing accounts, etc.
  • You’ll know exactly how much you are paying for the fees, and won’t get dragged under by hidden business expenses.
  • The umbrella company chases payments on your behalf.
  • You can start and end your agreement with ease, making it a far less cemented commitment than starting a Limited Company. This is great for testing the waters.

This is still seen as the alternative way of handling your contracting operations. However, the hassle-free approach is regarded as an attractive prospect for many contractors old and new, particularly as it removes the fear of doing things wrong. Under the right circumstances, it can be ideal.

The Disadvantage Of Using An Umbrella Company

The demand for umbrella schemes is growing by the year, but the concept of setting up a Limited Company remains the most common pathway for contractors in many fields. This option offers some features that the umbrella schemes cannot match. Here’s where being an ‘employee’ can fall short;

  • Using an umbrella company prevents you from gaining the tax benefits that could be obtained from paying yourself partly through Limited Company dividends.
  • Umbrella companies will charge a weekly or monthly fee, which needs to be factored in. In some cases, they may even want to take a commission – steer clear of these operations.
  • You won’t have the same level of control over financial matters and may not be able to expand and grow as you could as a business.
  • When approaching clients, you won’t have the power of a brand behind you.
  • Some umbrella companies will feed you false promises regarded expenses and other features, leaving you in a worse scenario than what you’d forecast.

The disadvantages will outweigh the positives for some contractors, which is why they are worth knowing. Nonetheless, the growing demand for the hassle-free approach to handling contracts cannot be ignored. For some, it will be the perfect option.

Which Is The Right Option For You?

The choice between using an umbrella company or taking the traditional route is largely one of personal preference and requires weighing up the pros and cons related to money, time, and emotional hassle. Take the time to consider all aspects, and it will provide the perfect platform for your future contracting activities.

If you are a contractor and need to compare umbrella companies then get started here

Moving into the world of contracting can be an immensely exciting time for a modern worker, not least because an increasing percentage of business-to-business activities are now handled through this route rather than traditional employment. If you’re going to make this transition, however, it’s imperative that you find a structural setup that works for you. One of the toughest challenges is deciding whether to launch a Limited Company or join an umbrella company instead.

A little research goes a long way, especially when making one of the most crucial decisions of your entire career. Here’s all you need to know.

Two Ways To Handle Your Contracts

As a contracted worker, your first job is to gain a little insight into the two ways contracts can be handled:

Direct Contact: This exists directly between the client company and your limited company or umbrella company.
Indirect Contract: This exists when a recruitment agency serves as an intermediary. So, one contract is made between the client company and the recruitment agency while another is created between the recruitment agency and your limited company or umbrella company. There is no direct contract between you and the client.

Either way, there is no one definitive answer as to which option you should take, which is why you need to learn a little more about both options.

The Limited Company Route

Joining the country’s 1.8 million actively trading companies will see you take on a host of responsibilities. After all, you’ll need to file the company’s taxes while also adhering to HMRC’s tax deadlines. As a contractor yourself, you probably won’t need to worry about the duties of taking on employees – at least not yet. More importantly, there are many benefits to be had from this option.

Operating as a Limited Company is commonly the most efficient option from a tax viewpoint. You pay yourself a small salary and take the remainder in the form of dividends, which are exempt from National Insurance Contributions. Being the company director additionally gives you immense flexibility over when to withdraw funds from the business.

Starting a Limited Company can be accomplished for just a one-off fee of a few pounds, although many choose to use an accountant as this will take care of other related tasks.

The Umbrella Company Route

Umbrella companies have become hugely popular in recent times. The basic premise is that you become an ‘employee’ of the company, although you’ll continue to complete your contracted tasks as usual. The only significant difference is that they will handle your salary payments, which also means that they can take care of income tax, NICs, and pension plans before paying you.

Essentially, like a traditional employee, the money you receive is yours. The umbrella company makes using timesheets very easy too while the best ones offer very quick payments too. While the service does come at a small fee, it does save the hassle and outlay of setting up a company. Moreover, you won’t fall victim to filing your taxes incorrectly.

Depending on your situation, you may have very strong feelings on whether to start a business or use an umbrella company. As long as you do what works best for you, your future as a contractor will look brighter than you ever thought possible.

If you are a contractor and need to compare umbrella companies then get started here

As a contractor in the UK, linking up with an umbrella company may be one of the smartest moves you’ll ever make. Unfortunately, due to the sheer volume of options out there, it can feel like a minefield. Thankfully, finding the perfect solution for your needs needn’t be nearly as difficult as you may first fear.

There are many metrics which can be used to analyse the credentials of any given umbrella company, and this can make the whole process feel overwhelming. In reality, though, there are only two main issues to consider – the cost, and the level of customer care.

Find an umbrella company that satisfies those two elements, and you’ll be just fine.

Judging umbrella companies on the cost

Umbrella companies need to make their money and will inevitably charge you for their services. However, given that this whole process relates to your career, it’s imperative that you avoid being taken for a ride.

On average, umbrella companies charge in the region of £30 per week for processing the timesheets. Others will work on a commission, taking a % of your invoice amount. For the sake of stability, as well as financial returns, it’s probably better to stick with a fixed rate fee. Knowing whether the company wants to charge you on a Gross or Net basis is vital too, with the former being preferred.

Some umbrella companies will charge a joining fee too. While this may not seem overly significant in the grand scheme of things, you should always factor it into your calculations. Ultimately, the best decision is a financially suitable decision.

Judging umbrella companies on the customer care

Customer care is something of a subjective metric, but there’s no doubt that you should be looking for an umbrella company that takes responsibility to actively provide you with the very best service. Anything less could leave you in some very stressful situations.

First and foremost, you want to join an umbrella company that responds quickly to your calls and emails. Meanwhile, they should be willing to help you with the technology used to send off timesheets and process expenses. If they offer same day payment processing via CHAPS, this can be seen as a positive factor. On a separate note, it’s imperative that they comply with the latest tax regulations. Otherwise, you could be put in a very vulnerable situation.

Another top tip when conducting your research is to find out what other contractors think about the company. Recommendations and testimonials can go a long way to either building your trust or help you avoid a nightmare. This is far more significant than reading the clever marketing lines that all umbrella companies spout.

The final verdict

Are there other ways to judge an umbrella company? Of course. Ultimately, though, the one that provides you with an easy service at the best price is the one that should be considered to be the greatest option at your disposal.

Sign-up processes are usually very simple too. There’s nothing to stop you getting started today.

If you are a contractor and need to compare umbrella companies then get started here

The decision to work through an umbrella company is a big one, but one that offers numerous benefits to contractors. It is also a decision that leads to another decision: when you know you are going to work through an umbrella company, you have to choose which company that will be.

To ensure you are able to find a suitable company for you, we’ve put together a list of questions you can ask each provider, and what answers you should expect in return…

Are you a PAYE company?

Working for a non-PAYE umbrella company may seem like a good choice, but it can actually create myriad tax-related issues. A true umbrella company will play a more traditional, employer role in your working life, so if the company responds that they are not a PAYE firm, you’re going to want to look elsewhere.

What is the margin?

Before agreeing to work through an umbrella company, you need definitive figures rather than the figures the company may have used in their marketing campaigns. In particular, take note of the specific fees that you are liable to pay; if they are unwilling to provide this, or suggest they work on a percentage of invoice system, then extra caution may be required.

Do they have technology in place to manage timesheets?

Dealing with timesheets in an efficient manner is something you should expect of all umbrella companies, and there have been numerous technological advances over recent years to help with this area. If a company has not taken advantage of the digitalisation of payment-related areas, this is potentially concerning. You should expect an online accounting system to be implemented; this should allow you to look at your timesheet submissions and, where applicable, your expenses claims as and when you see fit. If an umbrella company does not provide this ability then, once again, caution is advised.

Are there any hidden fees?

You will expect to pay a fee when working through an umbrella company, but you also need to know about ‘hidden’ fees – for example, you may be asked to pay if you leave the company. It is usually best to ask for a complete breakdown of all the fees you may be expected to pay.

What is the payment schedule?

If you are entering into an agreement with an umbrella company, you need to know how this is going to align with your financial commitments on a monthly basis. It may also be worth asking for a guide to payments that are made across holiday periods; for example, how the Christmas and New Year bank holidays may impact the usual payment schedule.

How are payments made?

Ideally, you are looking for an umbrella company that utilises the Faster Payment system, which allows payments to be received within hours of being released.

How long has the company been established?

Background information on any company you are looking into is highly beneficial. A solid track record in your own chosen field is preferable, and you may also want to check information on the company’s financial solvency prior to entering into an agreement with them.

In conclusion

By establishing the answers to the questions above, you will be able to make an informed decision regarding the viability of any umbrella company you have under consideration.


If you are a contractor and need to compare umbrella companies then get started here


So what are Umbrella Companies and how exactly do they work?

With more and more assignments being handled by contractors each year, umbrella companies have become an increasingly popular solution in recent times. If you’re a contractor, you may well come across them at one stage or another. Before jumping straight in at the deep end, though, you should first educate yourself about what they are, and how they work.


Only then will you be able to decide whether this type of partnership is in your best interests. Here’s all you need to know.


What is an umbrella company?


PAYE umbrellas companies are standard UK limited companies. They essentially serve as an ‘employer’ to contractors by providing the intermediary services between a recruitment agency or end client and the contractor who will be conducting the work.


Essentially, their job is to help contractors reclaim their legitimate business expenses, including travel and subsistence, without breaking SDC (Supervision, Direction and Control) regulations or IR35 legislation.


The umbrella company provides payroll services to its employees, processing timesheet, expenses and invoices.


A brief look at the intermediary process


For contractors considering the concept of joining an umbrella company, it’s important to know exactly what to expect. Here are the eight simple steps that will be completed.


  • Once the umbrella company is confirmed as your ‘employer’, they will sign a contract with the recruitment agency.
  • You, the contractor, will sign a contract with the umbrella company.
  • You’ll complete the agreed work as a contractor before completing the timesheet and having it signed off by a manager.
  • You will submit the confirmed timesheet to the recruitment agency as well as the umbrella company.
  • The umbrella company will invoice the recruitment agency (or end client).
  • The recruitment agency will pay the invoice to the umbrella company, who will subsequently prepare your payroll.
  • The umbrella company will pay you your salary. They will have factored in income tax, national insurance, pension payments, and their agreed weekly/monthly fee. They’ll also reimburse acceptable expenses.
  • Finally, you can claim any extra expenses against your income tax bill at the end of the financial year.


While the exact methods used for processing timesheets and other key documents may vary slightly, the above process will be accurate regardless of the PAYE umbrella company selected.


Finding the right umbrella company for you


The growth of umbrella companies over the past 20 years has been quite exceptional, and there are now hundreds of companies offering this type of service up and down the country. Therefore, finding the perfect solution for your needs can feel like an immensely difficult task.


Ultimately, though, it boils down to a being a decision about finance and customer care. Use the weekly/monthly fee as your main barometer while additionally asking for recommendations regarding customer care, and you won’t go far wrong.


Before doing anything else, though, you’ll want to check that the umbrella company partnership is actually needed. If working as a Limited Company is a better solution that won’t break any tax regulations, don’t be afraid to take that route. The best decision is the one that works for you.


If you are a contractor and need to compare umbrella companies then get started here