We’ve outlined the primary reasons why contractors and freelancers prefer to use umbrella companies for their payroll for contracts inside IR35. Additionally, we’ve provided an overview of what an umbrella company is for your information.
An umbrella company: what is it?
An umbrella company is frequently used by recruitment firms or end clients to pay temporary workers. You will be employed by the umbrella company, which will use PAYE to pay your salary. The duty of the umbrella company is primarily administrative and accountancy-based; this includes billing clients, collecting money, processing payments, managing all paperwork, and paying contractors. It is the recruitment agency that finds temporary work for you, not an umbrella company.
You will be employed by the umbrella company, but the end client will be the recipient of your work. If you choose a reliable and compliant umbrella company, using one of these companies for your payroll is among the easiest methods to operate as a contractor without having to worry about unanticipated tax costs. Working on several assignments and getting experience in various work environments makes it much easier to expand your skill set fast when you are employed by an umbrella company.
The advantages of becoming an umbrella company employee
There are many advantages of becoming an employee of an umbrella company which we will explore below.
Adherence to UK tax legislation
You will be paid in accordance with UK tax legislation and HMRC requirements if you register with an umbrella company that operates compliantly. The umbrella firm will pay HMRC on your behalf by deducting the necessary taxes.
Adherence to off-payroll regulations
You do not have to worry about IR35 if you utilise an umbrella company to get paid for your assignments because PAYE applies to your payments. Your umbrella company will deduct and pay the appropriate amount of tax and National Insurance to HMRC before you are paid.
Minimal administration
Umbrella companies provide a simple method of payment and aim to make your life as easy as possible. All you have to do to get paid on time as an employee is turn in timesheets (if required by your agency or end client) once you’ve completed registration and returned the necessary paperwork. The remaining administrative tasks, such as billing your agency or final client, processing payments, and handling tax deductions, will be handled by your umbrella company.
There’s no tie-in at all
When you utilise an umbrella company for your payroll, there are no joining or exit costs, and you are free to use and leave the company whenever you like. You will not be charged for weeks that you are not employed; instead, they will simply deduct their margin each time they process a payment.
Continuity of employment
Continuity of employment is one of the main advantages of working for an umbrella company compared to receiving your wages via agency PAYE. You can work for several clients concurrently or consecutively by using an umbrella company. You won’t have any adverse effects on your tax code, and the umbrella will continue to be your only employer. Maintaining a steady job is advantageous when attempting to raise your credit score, obtain a mortgage, or take out a bank loan since it will provide you with a stable work history.
Benefits for employees
An umbrella company hires you when you register with them. You will thus be able to utilise your statutory entitlements as an employee, which include Sick Pay and Maternity/Paternity Pay. Please check the government’s website for further details.
Easy to register
It’s incredibly easy to register with an umbrella business; the entire process should take ten minutes at most. The majority of umbrella firms will give you the choice to register online or over the phone.
A margin for an umbrella company is inexpensive
Every time they handle a payment, umbrella companies will take a weekly or monthly margin. Although margins differ between providers, they usually fall between £15 to £30 per week, which is significantly less than what you would spend for an accountant.
A business bank account is not required
You are not required to open a separate business bank account for your earnings, in contrast to a director of a limited company. Payments can be made to you directly from your bank account.
It is not necessary for you to file a self-assessment tax return
You do not have to file an annual self-assessment tax return if your umbrella company is the only source of your income (as long as the firm complies with regulations). This is because the umbrella company will submit your tax deductions to HMRC on your behalf, and all of your income has been taxed at source before being remitted to you.
Are you looking for an umbrella company?
If you are looking to discover the benefits of using an umbrella company for yourself, why not take a look at our top 10 umbrella companies. You can request a take-home pay illustration or discuss the benefits of using their service. And, some have special offers at the moment.
