What are the advantages and disadvantages of an umbrella company?

Choosing between limited or umbrella can be a difficult decision to make, especially if you are new to contracting. Contractors and freelancers use umbrella companies for a wide variety of reasons. Quick set up and hassle-free payroll processing mean that umbrella companies are the easiest way for contractors to get paid.  

Continue reading to gain a better understanding of whether an umbrella company is right for you.

• Working through an umbrella is the easiest way to operate as a contractor.
• All tax and deductions are made by the umbrella company and paid to HMRC on your behalf.
• Registration is simple and you can be up and running in a matter of minutes!
• Umbrella companies are the best option if you are working on a short-term contract, or are receiving an hourly rate of £15 or less.
• Most umbrella companies offer Professional Indemnity insurance, as well as Employers and Public liability insurance – for free.
• If you are just starting out as a contractor, or unsure if contracting is the right option for you, working via an umbrella offers a low-risk way of trying it out. You can easily return to permanent employment or form a limited company at a later date, if you wish.
• There is very little administration as the umbrella company takes care of all your invoicing, processing payroll and administration. All you have to do is complete and send your timesheets to your umbrella company.
• As an umbrella employee, you still get statutory benefits similar to a permanent employee- Sick Pay, Paternity Pay, Maternity Pay and Annual Leave.
• Umbrella companies can be used for any contract role, industry or experience.
• If you are eligible (not subject to supervision, direction or control, or a mobile worker), you can claim tax relief on travel and subsistence expenses.

• You will have less control over your affairs compared to if you were a director of your own limited company.
• Umbrella companies do not have the same tax benefits associated with limited companies. All your income is paid as a salary and the umbrella company will deduct PAYE and NICs, along with their margin prior to your salary being paid into your bank account.
• Beware of umbrella companies that claim that you can retain up to 90% of your salary after tax and NI deductions have been made. These are offshore intermediaries and could land you in a lot of trouble with HMRC. Read Umbrella Company UK’s blog on how to spot tax avoidance schemes to find out more.
• You can only claim back expenses which have been ‘wholly, exclusively, and necessarily’ incurred during the course of your contract duties and if you are not subject to supervision, direction or control.

Umbrella Company UK is an industry leading and compliant umbrella company with over 20 years’ experience in the contractor industry. You can count on our expert team to support you through your contract work.

As well as the advantages above, Umbrella Company UK can offer you the additional benefits listed below – at no extra cost.

• We offer £10 million Public Liability Insurance, £10 million Professional Indemnity Insurance and £5 million Professional Indemnity Insurance which is higher than other umbrella company providers.
• You will only pay for the service you require and there are no hidden costs, joining or leaving fees.
• Our umbrella company specialists will provide you with ongoing support and will answer any queries you have by phone or email.

To find out more about our umbrella scheme, or for free and impartial advice, please call our friendly experts on 01707 669023, request a callback or complete the short form on this page.