In simple effort vs reward terms, the inconvenience of setting up or continuing to run a limited company to handle their personal and professional finances might outweigh the financial benefits post April 2020.
After all, you could spend a lot of time and money on getting an apparently legally-sound IR35 contract drawn up for your clients to sign. But in the end, your client will err on the side of caution and declare your involvement with them as within IR35 anyway.
It’s no wonder then that the use of “IR35 safe” umbrella companies are being re-evaluated. Umbrella companies are considered the perfect vehicle of contractors caught by IR35 to invoice through because the employment status of the contractors it works with is employed (and thus they pay tax via PAYE).
Contractors and freelancers using umbrella companies are the employees of their umbrella. They can continue to work on various assignments for different clients. Much as they would through a limited company. In reality then while their employment status changes, their ability to act as a self employed contractor doesn’t.
Yet IR35 isn’t the only reason why Umbrella Companies are on the up. In fact the umbrella company vs limited company debate has been swinging in favour of umbrellas for quite some time. Ever since the dividend tax credit was abolished on the 6th April 2016, the financial advantages enjoyed by limited company contractors have diminished greatly.
While contractors can still keep more money using a personal service company than they can as an umbrella company employee. It’s important for contractors to really question whether this marginal additional amount of take-home pay is actually worth the extra administrative effort. Especially in the light of the change to the IR35 rules and HMRC’s increasing activity in finding and penalising contractors who inadvertently fall foul of these complex rules.
In this article, Umbrella Supermarket examines four of the main reasons behind why experienced, limited company contractors are looking again at their financial set-ups.
Under current UK employment law, contractors using umbrellas enjoy many statutory UK employment rights protections. Including protection from illegal wage deductions, from unlawful discrimination, and from reprisals caused by whistleblowing. You also have the right not to work more than 48 hours a week (plus the right to opt out of this protection), the right to statutory minimum paid holidays during the year, and the right to benefit from the minimum rest break length.
You may also benefit from statutory maternity/paternity/adoption leave, statutory sick pay, and shared parental pay. You can find out more on the Government’s website about the employment status and rights of “workers” by clicking here.
Although the rights of “workers” are not as comprehensive as standard full-time employees, the protections you receive as an umbrella contractor as much greater than the protections a contractor using a limited company receives.
Because you’re an employee of an umbrella firm and by definition an employed “worker”, your umbrella firm must offer you access to the Workplace Pensions Scheme. Anybody working for an umbrella company must be given equal access to the same pension contribution scheme rights as a standard employee and, if you wish to join a pension scheme, your umbrella firm most enrol you into one.
Umbrella contractors never have to worry about working out their income tax and National Insurance submissions every month. Your umbrella company manages all payroll on your behalf and the taxes which you incur are deducted from the payments you receive every month to be transferred the HMRC’s PAYE department by the required time during the following month.
Your umbrella company will provide an itemised breakdown of each payment made to you compliant with the terms of the Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) (No.2) Order 2018. Your payslip will show an exact reckoning of the money that you’ve earned and the deductions that have been made.
With most umbrella companies, you simply submit a timesheet and any expenses information every week. The information contained on both is then used to calculate how much you’ll actually take home and receive into your bank account each month. You don’t have to send invoices to clients, chase payment, or process payroll information via a third-party provider – your umbrella does all of this for you.
As an added bonus, just like a normal employee, there is no self-assessment to complete and there are no limited company accounts to submit to Companies House or CT600s to HMRC.
Another major benefit of being paid through an umbrella company is a joined-up financial record which can then be used as evidence that you can successfully service a loan, mortgage, or other credit facility. It’s much easier for lenders and brokers to process a series of payslips than it is to determine affordability by interpreting separate personal and limited company accounts.
Recently, the amount that umbrella contractors and limited company directors working within IR35 are permitted to claim back on travel and subsistence expenses has changed.
However you’re still allowed to claim subsistence charges if you are not supervised, directed, or controlled by the client on the job you’re working on. You can also still claim on travel expenses between sites if you are under a client’s supervision, direction, or control.
Many umbrellas no longer allow their employees to make travel and subsistence expense claims because they are concerned that there is a high level of risk of declaring certain expense claims as allowable. If this is important to you and if you want your umbrella company to claim back travel and subsistence expenses on your behalf, you should check with each umbrella on its individual policies before committing to work with one.
There are hundreds of umbrella companies in the UK right now competing for your business but how do you sift through all of the offers to find the best suited for you and your career? The answer is to start your search through Umbrella Supermarket.
To start your search, please click here.
Any contractor considering switching to an umbrella company will want to know how to find the best provider to work with.
Although you could spend your precious time and energy searching the web for the best umbrella company, there is an easier way – using an umbrella calculator.
In this guide, Umbrella Supermarket explains why every contractor should use an umbrella calculator in 2021.
If you are considering contracting you will need to decide on PAYE or umbrella.
It can be a difficult decision to make and contractors will inevitably be questioning which option will be the best for them.
To help every contractor get on the right track for them, in this guide Umbrella Supermarket looks at PAYE vs umbrella, outlining the key differences and how this will impact you.
There are many reasons that contractors across the UK opt to work under an umbrella company.
Umbrella companies offer an easy way to contract and remove the need for the contractors to worry about the burdens of admin, finances, tax and IR35, all things that limited company contractors have to deal with.
For this reason, many contractors will be weighing up their options and questioning whether it is worth using an umbrella company in 2021. To help make the decision that little bit easier, Umbrella Supermarket has put together this guide on the pros and cons of using an umbrella company.
Any contractor that is considering operating through an umbrella company in 2021 will need to understand Umbrella Company fees - from why an umbrella company charges fees, how they are paid to how much the contractor will pay.
In this guide, Umbrella Supermarket answers those all-important questions to help every contractor know exactly where they stand when it comes to umbrella company fees.
If you’ve made the decision to contract through an umbrella company in 2021, you will next need to find an umbrella company that’s right for you.
After all, there are lots of umbrella companies out there, so how do you know which one to choose?
To help you find the best umbrella company for you, in this guide Umbrella Supermarket outlines what makes a good umbrella company, so you can rest assured you’re making the right move.
One of the many advantages to operating through an umbrella company for contractors is that they become an employee of their chosen provider.
In turn, this means that the contractor will be automatically enrolled onto the umbrella company’s workplace pension scheme.
To help contractors find out more about umbrella company pensions Umbrella Supermarket has put together this handy guide.
If you are considering contracting through an umbrella company you will naturally have questions and queries over how they work.
After all, making the move to umbrella can be a big step for contractors. To help, in this guide Umbrella Supermarket explains how to get started with an umbrella company and share our top tips for using one in 2021.
PAYE or umbrella is a question asked by every contractor. Which one you opt for will have a big impact on your contracting career and lifestyle. So, it's important to make the right decision for you.
To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.
One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.
To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.
Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.
One way that contractors can work is through an umbrella company.
Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?
To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.
There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.
After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.
However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.
To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.
If you're considering making the leap to contracting, you will understandably want to know how much you will have to pay in umbrella company costs. After all, this amount comes directly out of the contractor’s pocket, so it’s important to be clued up on how much you should expect to pay.
To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.
