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If you are a contractor looking to manage your workload and generally work in a more efficient way, working under an umbrella company may be an option worth investigating.
An umbrella company can provide a compliant and low-risk alternative to setting up your own business for contractors, freelancers and the self-employed.
When you choose to work through an umbrella company, you effectively become an employee of that company and from there, they contract out your business to clients. The umbrella company will pay you as an employee on a PAYE (pay as you earn) basis including tax and NIC.
You’re still in controlYou may be wondering what the point of starting a business is and then becoming an employee of another company. Simply put, you are still in control of your business, just as you would be if you did it alone, but you are paid by the umbrella company instead of the need to do your own payroll. You will stay under the employment of the umbrella company through your different contracts and assignments that you take on, the difference being that the administration between client and yourself would be dealt with by the umbrella company. You are free to move clients and contracts throughout your time under the umbrella, and all paperwork is fed back to them in order for you to be paid.
The BenefitsThere are many benefits to working under an umbrella company and the main one is that you no longer need to worry about the hassle of payroll and keeping your accounts under control - no need to hire an accountant! You will not need to find extra time in the day to deal with the administration that comes with that aspect of your business which frees up time for you to focus in your business, not on your business. An umbrella company is under the control of HMRC which means that the payments they make are done through the PAYE system. You should effectively take home as much of your pay as you would as a standard employee, minus the fee you pay to the umbrella company for dealing with the admin, which is minimal.
Irregular contractsIf you are a contractor who changes contracts and assignments often and finds it hard to complete all the administration including tax breaks, you would benefit from working with an umbrella company. When you leave a PAYE job, you’d be given a P45 that details your earnings to date with that company. Going into a new job may mean that you are then put onto an emergency tax bracket and will pay more tax.
Mortgage BenefitsAs a contractor or self-employed worker, it is much harder to obtain a mortgage agreement when looking to purchase a property. Most lending company like to see at least three years’ worth of accounts before they will consider a mortgage agreement. Being an employee of an umbrella company will mean that effectively on paper you are a permanent employee and therefore you will have a contract that details your earnings, making mortgage applications a much easier process.
Working with an umbrella company creates a security for contractors to know that they are being covered in the case of lack of work or change in circumstances. Here at NWM we work with contractors from all different industries and will ensure that you are have everything you need to stay on top of your finances. If you’d like to know more about working with an umbrella company, or for an informal chat, please get in touch.