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What are Umbrella Companies?
Umbrella Companies provide freelance contractors with a fantastic ready made structure to deal with contract income. With an Umbrella Company there is no need to worry about starting a Contractor Limited Company, opening a business bank account, registering for VAT, making regular PAYE payments, dealing with annual accounts and returns etc. Umbrella Companies deal with all of this day to day business administration and also allow contractors to reduce tax deductions by claiming site based expenses incurred further to contract work.
If you would like to find out more about using Umbrella Companies call Commonwealth Contractors now on 0800 294 4388 or Submit your details and we will get right back to you. Our experienced Account Managers can provide help and guidance on contracting solutions and even help if you are looking for a contract and require support.Contracting Options
In April 2007 the Government Introduced the Managed Service Company Legislation which effectively removed Composite Companies as a realistic option for contractors. Post April 2007 the contracting options that exist for freelance contractors are:- Agency Payroll
- PAYE Umbrella Company
- Contractor Limited Company (only usually sensible for contracts outside IR35)
Although Agency Payroll is technically an option in practice it seldom makes sense to operate this way. Agencies are also generally unwilling to provide payroll services as it increases their overall costs. The expenses claimable using an Umbrella Company and the resulting net pay difference normally outweigh any fee or margin payable for the service.
The legal Employer
If you use an Umbrella Company to deal with contract income the Umbrella Company will be your formal legal employer. Many first time contractors are confused as to who their employer actually is, this can lead to miscommunication when dealing with organisations such as the HM Revenue and Customs.Nine times out of ten when you work as a contractor you will secure a contract via a recruitment agency with a client. If you are going to use an Umbrella Company to deal with contract income you will instruct the agency to agree service contracts with the Umbrella Company. The service contract will detail the terms of the agreement (rate, duration, notice etc) that you as the contractor will be working further to. When you sign up with the Umbrella Company you will also sign an employment contract with the company.
On a day to day basis you will complete timesheets and send them to your employer (the umbrella company). The umbrella company will then invoice the agency and the agency will invoice the client for the hours worked. The client pays the agency; the agency deducts their margin and pays the umbrella company. The Umbrella Company (your ultimate employer) then deducts tax, national insurance and an agreed margin and pays you, the worker. By using an Umbrella Company you benefit from minimal administration, greater net take home pay (where expenses are taken) and peace of mind (you will never face an IR35 Investigation).
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