Umbrella Company

What is an umbrella company?

An umbrella company is simply a firm that acts as an employer to contractors who operate under a fixed term contract.

The question is this.

Could an umbrella company work for you?

To answer this question effectively, you have to understand how these companies work. You also need to know some of the amazing time and cost-saving services an umbrella company can offer your firm.

Understanding umbrella companies

Among other functions, umbrella companies process timesheets received from the contractor. They also issue an invoice to the client for payment.

This means that the umbrella firm provides payroll service on the contractor’s behalf. They bill the agency and the agency bills the client for jobs completed by the contractor.

Signing up with an umbrella company

Now, let us assume that you have just signed up with an umbrella company. Below is a systematic explanation of your working§ relationship. Remember that you are the contractor and you have a contract with another firm.

First, you sign an employment contract with the umbrella company. The client (the firm or agency that gives you a contract) signs the Agency Timesheet.

This sheet will confirm the hours/days you have put in on the job. You send the signed timesheet to the agency and send a copy to the umbrella company. You also send any expense claims along with the timesheet.

Based on the figures on the timesheet, the umbrella company will raise an invoice to the agency. The figures here refer to the work you have done plus any expenses the client will reimburse.

The agency raises an invoice for completed work plus expenses. After they have completed all the paper work on your behalf, it’s time for you to get payment.

The client pays the agency and the agency pays the umbrella firm in accordance with the agency’s payment schedule. The umbrella company gets the payment processed, deducts the necessary tax as well as National Insurance contributions all for you. They then pay you the money that is due you through a PAYE system.

In effect, you get your money less NI contribution, tax and the fee charged by the umbrella company with none of the tiresome paperwork.

Now, you know how the process works so let us look at the benefits of these companies to contractors like you.

Raising invoices and timesheet chasing

Your umbrella company will ensure that you send in your timesheet as soon as possible. The company will also help you raise an invoice immediately after your timesheet is received. This ensures that you get paid on time.

In addition, they will help you chase outstanding invoices and send you regular account updates. Another great factor for those who hate having to chase late payments.

Personal business manager

Your umbrella company also offers excellent business manager service. This is because this company will help you with most of the paper work. Specifically, a good company will file tax returns, send you accurate statement of earnings, post original pay slips and deal with tax and national Insurance matters so you can make sure you are IR35 compliant.

Processing expenses

As contractor, you should process all expenses and sometimes, this can be quite challenging. The umbrella company will help you process expenses the right way.

You also get advice on how to remain tax efficient as well as assistance on filing receipts.

Accountant and management consultant

One huge advantage of dealing with the right umbrella company is that you save a lot of money.

Your umbrella company offers the same service you will get from an accountant or financial adviser at a fraction of the cost.

For instance, umbrella companies offer advice on effective salary sacrifice schemes Such as pension, “Childcare Vouchers” and “Give As You Earn”.

In addition, your umbrella company is responsible for chasing your money and making sure your invoices are paid.  They will offer excellent advice on cash flow, credit control and liquidity.

Employee benefits

When you sign up with an umbrella co., technically, you become an employee of that company.

This entitles you to benefits like :

  • sick pay
  • maternity leave
  • maternity pay.

In addition, you enjoy salary sacrifice schemes, shopping discounts and professional insurance.

Process payroll

The umbrella company processes your payroll accurately so you do not have to worry about this.

In addition, you get your P60 processed at the end of the financial year. You do not have to hire expensive tax accountants and you have no reason to file tax returns.

All these services are carried out on your behalf in a timely and competent manner.

Why umbrella companies are popular in the UK

Umbrella companies are popular in the UK for a number of reasons. First, these companies provide both administrative and financial service to contractors.

Your umbrella company invoices the client, chases payments, process expenses and deals with tax and NI contributions.

In addition, the umbrella company helps you take advantage of the IR35 legislation. By using an umbrella company, you can claim some of your business expenses against your tax. This gives you additional financial benefit and increases your profit margin.

Final word

Now, let us look at that question again.

Could an umbrella company work for you?

The answer is an emphatic yes. Sign up with the right umbrella company and you will enjoy all the advantages listed above.

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