When should I use an Umbrella Company?

An Umbrella Company is seen as an easier and hassle-free business structure for contractors, freelancers and the self-employed to operate under. Essentially, the umbrella company plays the role of the employer for the self-employed. It takes away the stress and the burden of running a company and carrying out administrative tasks, allowing freelancers/contractors to actually focus on their clients and projects.

When should I use an Umbrella Company?

Benefits of an Umbrella company 

The main benefit of using an umbrella company is that it removes the hassle 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. some of the other benefits include:

  • Working under an umbrella company takes away the risk of being caught inside IR35
  • Gives you more time to focus on clients and projects.
  • Finding the right umbrella company is like finding the right partner.
  • Umbrella companies can provide you with contracts to suit your needs.

Using an Umbrella Company

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. 

Freelance expenses

As an independent freelancer, the HMRC allows 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 by your gross earnings thereby reducing your tax and NI liability. Your umbrella company will process your freelancer expenses for you - usually free of charge.

Umbrella company, the better option 

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 to 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.

More on running your business and umbrella companies for freelancers.