Umbrella companies are the easiest way for contractors to ensure that all your taxes and admin is taken care of so you can focus on your work.
Benefits of Using an Umbrella Company
Umbrella companies are also able to provide you with the relevant insurance policies to provide you with protection should there be any problems, all of which you would normally have to sort out for yourself should you decide to operate through a limited company.
Another thing you need to consider is the amount of time it takes from job completion to actually having the money provided to them by the umbrella company. This comes down to two main points which should be considered when looking for an umbrella company. The first is the speed in which the company will submit an invoice to the client after receiving the timesheet. The second is the speed of the processing of the payments from when the umbrella company has received the fee from the client, to the actual releasing of the payment to the contractor.
Some companies claim to provide contractors with help reducing their tax liabilities, openly advertising the fact that they will provide the largest amount of tax free expense. However, the reality is that there is no legal way for them to reduce the amount of tax you are required to pay and whilst it may seem attractive, it is much more likely that this will just lead to a greater lever of (unwanted) attention from HMRC.
Downside to Using an Umbrella Company
The use of an umbrella company is not free, so price is one of the key factors to consider when selecting an umbrella company. Companies charge fees in different manners – either on a fixed price paid on a weekly or monthly basis or on a percentage basis of money earned.
The set-up that would be right for you comes down to how much you are anticipating you are earning. Obviously if you are making £100,000 a year, paying 5% of that results in a much higher fee than if you were paying a fixed fee of £25 a week. Alternatively if you are only making £10,000 a year through the umbrella company, paying 5% works out about half as much as if you were paying £25 a week.
So consider the sort of income level you are anticipating before deciding what pay format you wish to accept. You may only be making a few hundred to start with but down the line you may be making a lot more so make sure you take this into consideration.