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What are the Benefits of Working Through an Umbrella Company?

Contractor Supermarket asks 1st Contract Umbrella about the basics of contracting and how contractors could benefit from registering with an umbrella company.

Can you explain, in pretty simple terms and using no jargon, what an umbrella company is?

1st Contract (1st): An umbrella company acts as an employer to individuals who work in temporary roles. It enables them to enjoy the best of both worlds. They benefit from a higher rate of pay than as a permanent employee yet still get all the benefits of working through a big company. Things like sick pay.

So the contractor, working in a temporary role, is better off?

1st: Yes, if they use an umbrella company. You'll get the freedom & flexibility afforded by contracting plus all the benefits and convenience of being an employee.

What precisely are the main financial benefits, for a contractor, of working through an umbrella company?

1st: There are both financial and time management benefits of working through umbrella companies. Firstly the contractor is entitled to a higher rate of pay due to the agency uplift normally provided by the agency. Secondly you can offset expenses that are wholly and exclusively related to the work that you do against your tax.

Are you sure they can claim these expenses?

1st: In all instances these are expense or portion of expenses that are within HM Revenue & Customs guidelines. Expense payments will usually be made to employees (contractors) at the same time as salary payments. Most common expenses are travel, subsistence (lunches) and phone calls.

How does this affect the contractor's take home pay?

1st: This in essence decreases your taxable salary and therefore reduces your PAYE and NI taxes. Contractors even get a higher net pay!

Going back to your first point, what are the time benefits of using an umbrella company?

1st: The time management saving and satisfaction comes through the umbrella product ensuring that all your tax payments are made. The service they provide is that you are covered with a full suite of professional insurances: employer's liability, public liability and professional indemnity cover. Some are able to fast track your National Insurance applications if required. Your umbrella company will then issue invoices on your behalf, collect payments from your agency/client, pay your PAYE tax and NI contributions to HM Revenue and Customs and then pay your net pay straight into your personal bank account.

Umbrella companies sound like they offer a really valuable service to contractors. Can they do anything else?

1st: Some providers can also help claim back your National Insurance contributions through a NI Rebate.

It all sounds great, but why not just set up your own limited company then you can call yourself the boss?

1st: Because this is the easiest and most simple way to go contracting these days. You get this fantastic service but there are none of the administrative and regulatory hassles associated with self employment or running your own company. It is that simple! And you even get a higher net pay!

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Register here for the 1st Contact umbrella company service. It's secure, it only takes minutes & there are no charges or processing fees! It's free to register online for 1st Contact's umbrella company at Contractor Supermarket!

written on2010-08-20 17:18:22

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