The main benefit of using an umbrella company is that it removes the hassles associated with setting up and running your own limited company. The umbrella company is responsible for invoicing the agency or end client on the freelancer’s behalf, then paying them a net salary minus the necessary tax and national insurance contributions. The umbrella company deals with all the administrative work leaving more time for you.
Whilst using the services of an umbrella company you are paid through PAYE. This means that all your tax and national insurance liabilities are taken care of for you with the added advantage that IR35 will no longer be an issue. It also means that you will not receive any unexpected tax demands or have to worry about saving for your tax bill; it is all done for you.
As an independent freelancer the Inland Revenue allow you to claim certain expenses. These are either a direct reimbursement of your costs by your agency/ client or a cost to you that will be offset against your gross earnings thereby reducing your tax and NI liability. Your umbrella company will process these expenses for you – usually free of charge.
Many freelancers take short-term contracts between permanent roles and, in this case, a limited company is really not a viable option so an umbrella company is an ideal alternative. It should be quick and easy register with an umbrella company and just as quick and easy to leave.
An umbrella company is also a good springboard for new freelancers. The responsibility of a limited company can be quite daunting and many freelancers prefer to use an umbrella company for the first few months before making the transition.
