We all like to get a return on our investments – a return that leaves us with the satisfying feeling of having received value for money. But what about umbrella companies? It’s no secret that limited company contractors who are told they’re inside IR35 are likely to see a reduction in their pay retention. And, as a result, using an umbrella company (PAYE) may be a relevant solution. But are there any benefits to using an umbrella company, or are they just there to remind you that you’ll be keeping less of your hard-earned money? Let’s have a look.
Umbrella companies don’t make your IR35 assessments
Firstly, it’s not the umbrella company’s fault that you’re inside IR35! Hopefully, your client has given you a fair IR35 assessment, and one that they can justify. We want to make to make it clear that we fully support contractors being able to operate through a limited company! However, for those who may be better suited to using an umbrella company (probably because they’re inside IR35), we want to let you know that you have nothing to worry about. Umbrella companies often get a load of negative press, but we’re happy to jump to their defence. Umbrella companies are not the bad guys!
There is one main reason umbrella companies are not the most popular payroll service for contractors
Using an umbrella company for your payroll does have a load of benefits. However, let us address the main disadvantage of using an umbrella company first – PAYE. Due to changes in IR35 (often referred to as off-payroll legislation), more and more contractors are finding themselves inside IR35, and we all know what this means – no more paying themselves with a combination of salary and dividends.
The benefits of using an umbrella company for your payroll
Now that we’ve addressed the main disadvantage (or reason why umbrellas are not necessarily an attractive option for many contractors), let’s look at the many, often overlooked benefits of using an umbrella company.
Continuity of employment
When you use an umbrella company, you’re free to work on multiple assignments with different clients. However, the umbrella will remain your sole employer – meaning you have continuity of employment. This will help you when looking to make big investments, such as obtaining a contractor mortgage.
Use an umbrella company, and you become an employee of theirs. And as an employee, you’ll receive Statutory Employee Benefits, including Sick Pay and Maternity/Paternity Pay. This is definitely one of the major benefits of using an umbrella company.
You may be retaining less of your money than you once did, but umbrella companies are not expensive. Typically, their margin is £15-£25 per week – a lot lower than standard contractor accountancy packages.
Most umbrella companies will include substantial insurance cover as part of their service – and this will save you money. The most common types of insurance that’ll be included is Professional Indemnity Insurance, Employers Liability Insurance and Public Liability Insurance.
No tie in
Umbrellas charge a margin each time you’re paid by them. Therefore, if you’re not paid by them – you don’t pay their margin! You’re free to jump on and off their payroll as you please, with no tie-in period or joining and leaving fees.
Hardly any admin
You can be set up and ready to be paid by an umbrella company in little over 10 minutes. And, after that, all you need to do is submit timesheets in order to be paid! It really is that straightforward. There is no question there is significantly less administration than running a limited company.
Providing you choose a compliant umbrella company (we suggest an FCSA accredited umbrella company), you have nothing to worry about. You’ll be paying the correct tax and National Insurance Contributions (NICs) and face no risk of an HMRC tax investigation in the future.
Fairly straightforward payroll
Umbrella companies may sound daunting when you first come across them. However, they’re not too complex to understand, and once you’ve registered, there isn’t much more you need to do. We’ve created an umbrella company example and walkthrough that you may find really handy.
There are plenty of advantages and disadvantages of using umbrella companies. We hope the above has helped explain some of the main benefits of using one for your payroll.
Genuine contractors who are outside IR35 should receive fair IR35 assessments and as a result, be able to continue operating through their limited company. However, for those who find themselves inside IR35, using a compliant umbrella company is not as bad as you may think, and there are plenty of umbrella company benefits you probably didn’t know about.
If you’re interested in finding out more about umbrella companies, please have a browse of the umbrellacompanies.org.uk website. We’ve collated lots of information that been written primarily for contractors with questions about umbrella companies. And, we’ve also collated a list of our top 10 umbrella companies – and they’re all FCSA accredited.