If you’re a contractor, freelancer or an independent professional, you may have heard the phrase “you should use an Umbrella Company” many time times.
But what is an Umbrella Company, and why should you use one?
The simple answer is – it’s easier, safer and more efficient way of managing your payroll, timekeeping and invoicing than doing it yourself.
What is an Umbrella Company?
With the increase in contracting and freelancing, there’s been an accordant increase in the popularity of Umbrella Companies – but what are they?
Umbrella Companies provide a method for independent professionals to get paid simply, by effectively becoming employees of the Umbrella Company (“ the UC”) whilst the client is billed directly by the UC.
What are the benefits of using an Umbrella Company?
Rather than an independent professional invoicing a client directly, an Umbrella Company in the UK will pay you a salary through Pay As You Earn (PAYE) – which in turn will save you dealing with HRMC for tax and National Insurance Contributions (NIC).
Not only is this far more efficient to you for receiving your wages/income, but it will save time in paperwork (by avoiding you billing the client directly and chasing payment) as well as the obvious benefit of alleviating tax and NIC-related stress and submissions.
So you should use an Umbrella Company because they are :-
- far more convenient than billing the client directly yourself
- far less onerous, because the only other option for payroll is generally to set up your own limited company (and still be involved in billing the client directly and chasing your money)
- far quicker than dealing with clients – just 15 minutes a week to submit timesheet, receipts, etc. and the Umbrella Company will do everything else
- all the benefits of Employee life (Statutory Sick Pay, Annual Leave, Paternity Pay etc.) whilst remaining and independent contractor. Should you wish to work with another client, you can still bill them through an Umbrella Company.
- All insurances are covered (Professional Indemnity, Public Liability and Employer’s Liability) rather than paying these costs yourself
Is it not more hassle to work through an Umbrella Company?
Not at all, but let’s break this down into stages so you can see clearly why you should use an Umbrella Company…..
- Set-up – on average, it takes very little paperwork to sign up to use an Umbrella Company.
- Regular payroll – even if you are billing, weekly or any other period, it’s still repeated work for you to bill a client, isn’t it? It’s far simpler to just send your timesheet to an Umbrella Company and then not have to chase payments, isn’t it?
- Continuity – Once you’ve setup and are billing regularly, even if you change clients and work elsewhere, you can still continue using the same Umbrella Company for minimal disruption and effectiveness.
- Tax Year/Financial reporting – whether it be for tax or NIC, why not relax and let the Umbrella Company take care of all the reporting and submissions?