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Umbrella Company Guides
What is an umbrella company?
An umbrella company is a company that contractors can choose to work through as an alternative to setting up their own limited company business.
The umbrella company acts as their employer, and as the intermediary between the contractor and their recruitment agency or end client.
They handle all the administration and payroll, so it means you don’t have to deal with any of the administrative tasks or responsibilities that come with running a limited company like accounting and taxes.
The umbrella company will invoice your agency or end client, get paid for the work that you do, and pay you through PAYE, deducting costs like national insurance contributions and tax.
Why work through an umbrella company?
Contractors may choose to work through an umbrella company for a number of reasons.
They are beneficial for when you are first starting out as a contractor, as it is more straightforward than setting up and running a limited company, which can be a little confusing when you first set out.
Similarly if you are only planning to contract for a short amount of time. An umbrella company is the simpler option; you don’t want to go through the process of setting a limited company only to have to dissolve it in the future.
You might also choose to work through an umbrella company if you are working on a contract which is inside IR35, as the tax benefits of working through a limited company in this scenario can be reduced and the administration increased. You may even find that in some cases your recruitment agency or end client specify that they will only work with you through an umbrella company now due to IR35 reform.