An umbrella company offers a variety of advantages to contractors. In this article we will look at some of the key ones.
One of the main reasons that contractors decide to work with an umbrella company rather than on their own or through a limited company is that there is a lot less administrative hassle involved. Contrary to popular belief, it isn’t too difficult to set up a limited company but despite this, many contractors just prefer not to have to get involved in the paperwork side, beyond producing weekly or monthly timesheets. Others only intend to contract for short periods between longer phases of permanent employment. With an comparisoncontractor, they are essentially just PAYE employees so the umbrella company enters into a contract with their customers and deals with the invoicing, paperwork, payment processing and the paying of the fees to the contractor minus the tax and National Insurance owed. This way the contractor doesn’t need to deal with any of that and can just focus on the doing the work and logging their timesheets.
Linked in with the first point comes another of the advantages offered by an umbrella company, that all accounting and tax calculations are performed by the company there is no need to hire an accountant. Just as every small business needs to ensure their financial affairs are being handled by experts, all IT contractors and freelancers need to ensure that they find and work with an expert accountant that specialises in working with contractors but the problems. Only firms who work predominantly with the contract/freelance market will have an adequate knowledge of the tax issues related to running a contracting business so it can be a difficult not to mention expensive process. The benefit of an umbrella company is that they are able to do all of this for the contractor so they don’t have to worry about it. The company will receive the payment and then deal with all the tax deductions making life much easier for the contractor.
Many IT contractors are not working on a permanent basis and contracting is more of a temporary solution so the cost and complications incurred in starting a Limited Company is sometimes seen as a bit unnecessarily time consuming when an Umbrella Company allows them to get started easily and simply without needing to learn about any of the legal or technical side of running a business.
The final point, as briefly mentioned in the previous one, is that it is very simple to set up as a contractor through an umbrella company. All that is required is for a contractor to choose and join an umbrella company that they feel would be right for them (see the article on this for more details on how to do it), provide their contract and personal details and they are up and running. Then each week or month depending on how the umbrella company and the contractor works, the contractor submit their timesheet to the umbrella company who in turn invoices the client. The contractor is then paid by the Umbrella Company after their tax and national insurance contributions are deducted. That’s all there is too it!
comparisoncontractor 