What are umbrella companies?
Umbrella companies offer a convenient way to trade for many IT contractors. Some contractors either have no wish to, or are unable to, set up a limited company and in these instances umbrella companies are the main alternative. Other contractors may just wish to contract in the short term, perhaps just a few months, which makes setting up a limited company unviable. Umbrella companies became increasingly popular after the IR35 legislation was introduced over ten years ago, and even more so since the IR35 reforms in 2021.
Umbrella companies organise the paperwork on behalf of the contractor, who is employed on a PAYE (Pay As You Earn) basis by the umbrella company – meaning IR35 (and the MSC Legislation) no longer becomes a worry. If you decide to trade through an umbrella company you’ll be able to claim some of your business expenses against your tax (i.e. ‘allowable’ expenses incurred such as travel, meals, and accommodation whilst going about your work) as an additional benefit.
Leaving the day-to-day administration to the umbrella company is a benefit to many contractors who don’t want such distractions from getting the ‘real’ work done. All you have to do is provide your timesheet and details of expenses to your umbrella to get paid. In short, umbrella companies make contracting much easier by invoicing the client, chasing for payment if it becomes overdue, processing your expenses and sorting out your tax and National Insurance contributions.
You can find out more about working through an umbrella company on the government website here.
Want to know more about umbrella companies?
Here are some handy guides on umbrella companies:
What are umbrella companies?
For many, an umbrella company represents the ideal balance between the independence of the contractor and the convenience of the employee.
What are the costs and fees of umbrella companies?
Typical pricing structures, average fees, extra costs and red flags for umbrella companies.
Should I use umbrella companies?
Find out what an umbrella company can offer and whether it's for you or not.
How do umbrella companies work?
Understand what an umbrella company is and the process of working one.
Compare umbrella companies – a contractor's guide
How comparing umbrella companies can fetch you the best deal, and what to look out for.
How to choose between umbrella companies?
What should contractors be looking for from an umbrella company?
What are the benefits of using umbrella companies?
Knowing the pros and cons of operating under an umbrella company can help you to make an informed decision as to the best business model for your contracting career.
Umbrella companies: what their detractors don’t want you to know
Myths about umbrellas are still being peddled, by their critics and impersonators.