A Beginner’s Guide to Using an Umbrella Company
If you’ve never used an umbrella company before, the process may appear confusing and complicated. In fact, it is a relatively straightforward undertaking, and once you’ve got a clear picture of how they can help, you can confidently research which company best suits your needs.
Read our comprehensive guide for beginners below to understand how to start and effectively utilise an umbrella company.
Getting Started with an Umbrella Company
The primary advantage of an umbrella company is the ease of setup. Unlike forming a limited company, which involves registering with Companies House, signing up with an umbrella company is quick and easy.
Once you join, the umbrella company effectively acts as your employer as well as handling your company’s administrative burdens, allowing you to start working immediately, with all the benefits of an employee of the umbrella company.
How Payment Works
As an employee of the umbrella company, your payments are processed through their payroll system. Here’s how it works:
- Client Invoicing: The umbrella company invoices your clients on your behalf.
- PAYE System: They process your earnings through the PAYE (Pay As You Earn) system, deducting taxes and National Insurance contributions.
- Net Payment: After deductions, you receive your net pay directly into your bank account.
It’s straightforward and involves little administration on your behalf, eliminating the burden of self-assessment and ensuring that all tax obligations are met efficiently.
Claiming Expenses
Although you are an employee, you can still claim business-related expenses. These expenses must be necessary for completing your contract work. Common claimable expenses include travel costs, accommodation, and work-related equipment. Your umbrella company will guide you through the claims process, ensuring compliance with HMRC regulations to legally maximise your tax relief.
Services and Benefits
Different umbrella companies offer varying levels of services. Take care to choose one that meets your specific needs. Some essential services to look for include:
- Payroll Management: Efficient and timely processing of payments.
- Insurance Coverage: Adequate professional indemnity, public liability, and employer’s liability insurance.
- Statutory Benefits: Access to holiday pay, sick pay, and pension contributions.
- Additional Support: Assistance with childcare credits, maternity/paternity leave, and same-day payments.
Selecting a company that meets your requirements ensures you can concentrate on your contracting business, while the umbrella company deals with your company’s admin duties.
Choosing the Right Umbrella Company
With numerous options available, selecting the right umbrella company requires careful consideration. Here are some tips to help you make an informed decision:
- Fees: Compare the fee structures of different companies. Most charge a weekly fee, typically around £20-30. Ensure there are no hidden charges.
- Reputation: Check reviews and testimonials to gauge the company’s reliability and service quality. Opt for companies with a solid track record.
- Take-Home Pay: Use online calculators provided by some umbrella companies to estimate your take-home pay. This helps you understand how much you will earn after all deductions.
We can simplify the process for you, searching on the criteria you require to find the umbrella company that suits you.
Take the time to research and select an umbrella company that best meets your contracting company’s needs, and free yourself to concentrate on what you do best.
