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Operating through an umbrella company: what you need to know

Contractors and freelancers have many ways they can work. When you are self-employed, the most common options are to work as a sole trader or to set up a limited company, and then you can invoice your clients, get paid into a business bank account and present your Self-Assessment each year.

But there is another option – you could work through an umbrella company.

Working through an umbrella company

Umbrella Company Overview

So what exactly is an umbrella company?

This is a separate company that essentially acts as an employer for different contractors. If you work for a client or through an agency, an umbrella company becomes an intermediary between you and your client.

They are mainly focused on organising your payment. To do this, they collect your earnings from the client or agency and then pay it to you after discounting tax and national insurance – as well as their fee.

Each week, you will submit your timesheet to the company for all the hours you worked and list any expenses you need to claim. The umbrella company then invoices the agent or client, receives the funds and pays you.

 

How to Start

Starting to work via an umbrella company is relatively simple. Once you have found a company to work with simply sign up with them, sign their contract, and they will then sign a contract with your agency.

You can then start submitting your timesheets to the company and receiving your pay through it rather than from your clients.

 

Are You Still Your Own Boss?

Part of the appeal of being a contractor is being your own boss. With an umbrella company, you become an employee – but it’s not quite the same as working for a boss. You are still a contractor and you can still choose your clients, after all.

An umbrella company is more of an intermediary and all they really do is sort out your pay.

 

Main Benefits

An umbrella company is the main alternative to setting up a limited company, and it saves you setting up your own company and dealing with more complex financial matters.

However, it’s not for everyone. With your own limited company, you will be the director and there are various ways to minimise your tax exposure. That’s where a good accountant can help you.

You will usually pay a fee to the umbrella company and this could mean that you are losing more money working in this way, but the time saved might be worth it for you.

 

Consider All Your Options

Don’t dismiss working for an umbrella company – but don’t jump straight in either. It’s always best to consider all your options and decide which is most suitable for you. You might find that you are better off setting up a limited company, in which case you can talk to us for more information.

If you decide to work with an umbrella company, choose it with care. Make sure it is not taking an unreasonable fee, find out about possible penalties for leaving the company and ask other contractors for recommendations to ensure you find the right one for your situation.

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