A Beginners Guide to Umbrella Companies

When working as a contractor, many people dismiss the advantages that an umbrella company can offer due to preconceived notions relating to a contractor being ‘their own boss’. Due to this opinion, the idea of working under an umbrella company can seem rather incompatible with contracting. However this train of thought is sorely mistaken and umbrella companies can actually be an invaluable consideration to bear in mind.

An umbrella company is probably the primary alternative to setting up as a limited company. The overriding difference is in the status of the contractor in question. When a contractor establishes their business as a limited company, they head the venture from the position of a director, whilst joining an umbrella company results in the contractor actually being an employee of the umbrella company itself. Umbrella companies remove the vast bulk of administrative paperwork that a contractor would ordinarily be required to engage in, and even though their services can come at the cost of higher tax, they reduce a contractor’s personal responsibility to govern their own financial affairs.

Following the agreement of a contract, an individual operating in tandem with an umbrella company will be required to simply submit their timesheets and expenses which will then be used by the umbrella company to invoice and deal with all payments and HMRC regulations. Whilst many long term contractors prefer to set up as a contractor limited company, some prefer the freedom from financial and administrative considerations offered by an umbrella company. Additionally, working as an employee of an umbrella company allows a contractor to operate on a temporary or trial basis, meaning that there are definite advantages to this route.

No one contracting business structure is suited for all types of contractor. A limited company offers greatly reduced exposure to tax, yet for a contractor whose work tends to be caught by the IR35 legislation, an umbrella company is probably the advised methodology to pursue. At ICS, we are dedicated to offering a range of services that take into account the exact needs of each individual contractor, and our professional staff will always be on hand to provide all the advice and guidance that may be required.

It is always important for a contractor to use a fully compliant umbrella company. Be confident in choosing ICS – we’ve been established since 2002 and our compliant umbrella service is independently audited every year. Concentrate on your job knowing ICS are ensuring you get paid. Call us now on 0800 195 3750 to find out more.