What are the benefits of using an umbrella company?

In this short article, we’re going to highlight some of the key benefits of using an umbrella company for your payroll. Umbrella companies are often unfairly scrutinised, so we wanted to clarify to our readers that there are plenty of advantages to using them. Keep reading to find out more.

Pay the correct tax (PAYE)

Compliant umbrella companies will pay their employees using PAYE – an HMRC tax system. If you receive PAYE, you can be confident that you’ve paid the correct tax and National Insurance Contributions (NIC) and that you’ll never face an unexpected tax investigation in the future.

Great for first-time contractors

If you’re new to contracting, using an umbrella is a great way to introduce yourself into life as a self-employed professional. You’ll see why when you keep reading this article, but mainly umbrellas are helpful because you can use them if and when you please – without having to commit to their service for a specific period.

No long-term commitment

Most umbrella companies are free to join and leave, and you can hop on and off their payroll as you please. For example, if you usually contract through a limited company but opt to use an umbrella for a short-term assignment inside IR35 – using an umbrella for this will be a piece of cake. You can then return to your limited company at your earliest convenience.

Signing up is easy

Registering with an umbrella company can be a little tedious because, legally, they require a lot of information from you (so they can lawfully process your payroll). However, the sign-up process is usually really straightforward, and it shouldn’t take much longer than 10/15 minutes.

The easiest way for contractors and freelancers to get paid

Use an umbrella company – and you won’ have to worry about much administration. Once you’ve completed the registration process, all you need to do is submit timesheets for the hours you’ve worked. Realistically, this should take you longer than 5 or 10 minutes each week.

There are heaps of compliant umbrella companies to choose from

A recent report by the LITRG found that there are over 500 umbrella companies in the UK. Out of these umbrella companies, many have prestigious accreditations from professional bodies – and this is important.

The FCSA and Professional Passport are the two most recognised professional bodies in the UK. They’re both committed to ensuring the supply chain of temporary workers is compliant and ethical.

Employee Rights

When you register with an umbrella, they become your employer, and you are their employee. As a result, you’ll have access to employee benefits, including Statuary Sick Pay and Statutory Maternity/Paternity Pay.

Continuity of employment

Using an umbrella company allows you to take on multiple assignments while working for the same employer (your umbrella company). This is referred to as continuity of employment, and it can help contractors and freelancers looking to source finance, such as a mortgage or bank loan.

Low-cost margins

In reality, umbrella company margins are not expensive – depending on the provider you choose. We’ve written an article that explains umbrella company margins in more details, and we think you should look for an umbrella with a £15 – £25 weekly margin – and no more. Compared to other payroll options (such as accountancy fees associated with running a personal service company), the umbrella margin isn’t expensive.

Forget about IR35

Umbrella companies will process your pay in accordance with HMRC’s tax system PAYE. Therefore, you’ll be taxed like an employee (just like being inside IR35). Consequently, you won’t need to worry about your IR35 status and paying yourself incorrectly with UK tax law. IR35 is effectively irrelevant because you’ll be paying your fair share of tax and NIC. However, suppose you can operate outside IR35 compliantly. In that case, we recommend exploring the option of contracting through a PSC because you might be able to increase your pay retention with careful tax planning.

Free insurances

Most umbrella companies include considerable insurance cover, included within their weekly margin. The most common types of insurance that is included is employer’s liability (legal requirement), public liability and professional indemnity insurance. You should be able to work on your assignments with complete peace of mind.

A quick word of advice

We recommend that our readers only consider using an umbrella company accredited by either the FCSA (Freelancer and Contractor Services Association) or Professional Passport. You must choose a compliant umbrella company because, frustratingly, a few tax avoidance schemes and disguised remuneration schemes target honest workers.

Top 10 umbrella companies

We hope this article has helped you understand the most common benefits of using an umbrella company. Don’t forget to visit our site frequently, as our next article will look at the disadvantages of using an umbrella company.

If you’re interested in using an umbrella company, or you’re looking to switch umbrella companies, please check out our top 10 umbrella companies. They’re all accredited by either the FCSA or Professional Passport. And, some of them have fantastic offers on at the moment.

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Click here to see our top 10 umbrella companies!

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