With IR35 legislation changes just around the corner many contractors may be considering their options, one of which is whether to contractor under an Umbrella, rather than through their Limited Company if found inside IR35.
But whilst one of the main reasons which put contractors off the idea of using an Umbrella is a reduced take home pay, there are positives to using this method. In this blog we explore the top five benefits to using an Umbrella company.
One: You don’t have to worry about being caught by IR35
Designed by HMRC to identify contractors acting as ‘disguised employees’ and therefore taking advantage of certain tax benefits which they aren’t entitled to, IR35 is a piece of legislation which every contractor must be aware of.
By contracting under an Umbrella company (regardless of your IR35 status) you’re effectively an employee of the Umbrella, which pays your National Insurance Contributions (NIC), PAYE and tax due from your contractor fee. Once they’ve taken their fee you are then paid what’s left. This method leaves no ambiguity when it comes to tax in the eyes of HMRC.
Two: You can test the waters without setting up a Limited Company
If you’re just starting out in the world of contracting, or you’ve been enticed back in for one contract and don’t want to set up a Limited Company, then using an Umbrella is the perfect solution. You can test out the waters and see if the world of contracting is for you with few obligations, or use it for as long as you need without the worry and expense of having to close your company down.
The Umbrella company takes care of liaising with the end-hirer / client on your behalf and ensures you get paid, so you don’t even need to worry about that side of contracting. And if you’re planning on working on multiple shorter contracts, or are working on contracts between permanent employment, then an Umbrella company is a fantastic idea.
Three: Hassle-free contracting
When using an Umbrella company all you need to do is submit your timesheet each week, and your Umbrella company will take care of everything else. There’s no invoicing or chasing for payment
Your payslip will show a breakdown of your earnings, deducted tax and the Umbrella’s fee. Your take home pay will be paid directly into your bank account, so not too dissimilar to how you’d be paid if you were in permanent employment.
Four: Business expenses
Whilst using an Umbrella company will mean you’re not entitled to the same number of business expenses as you would be if you were using your own Limited Company, you’re still able to claim for some.
The Umbrella company you choose will be able to explain these to you, and make sure you’re making the most of any which are available to you.
Five: Have the best of both worlds
When using an Umbrella company you effectively become an employee of the umbrella, which means you’re also entitled to all the other benefits of an employee. For example this includes (but is not limited to) sickness and annual leave pay, maternity and paternity pay and other employee rights.
So whilst you’re able to choose the contracts you complete and the clients you work for, you’re protected as any other employee would be.
How SG Umbrella can help
Here at SG we’ve been looking after the needs of freelancers and contractors for over 25 years. Our team of expert director-level accountants work across our group services, which include SG Accounting, an accountancy specialising in the needs of contractors with Limited Companies, so should you ever decide to start your own company we can help you out. We also offer the ability to switch between Limited and Umbrella whenever needed, simply let us know your plans. Get in touch to find out more today.