Despite their rising popularity, there appears to be some lingering confusion over exactly what an umbrella company is. Self-employed people are turning to them in their droves, attracted by a plethora of time-saving advantages and practical perks, but for those who’ve yet to take the leap, it remains unclear what exactly contracting the services of an umbrella company will mean for the individual.

Will you still enjoy the same advantages you did before taking shelter under the umbrella company’s roof? Are you now still self-employed in the eyes of the law? Is there really any difference between the two? The answer is both yes and no. Although that sounds unnecessarily complicated, it really isn’t – and the good news is umbrella companies give self-employed individuals the best of both worlds.

How umbrella companies and self-employment are similar

For most freelancers, the freedom and flexibility that the setup affords them is the most attractive facet of the whole shebang. Fortunately, that side of things won’t change one iota. You’ll still enjoy all the benefits that you did previously. For those still not 100% sure on what those benefits constitute, here’s a quick reminder:

Setting your own rates

When working for a company, you have to accept the wage that they’re offering (barring some nimble negotiating skills prior to signing on the dotted line). However, as a freelancer, you’re at liberty to stipulate how much your time is worth and work exclusively with clients prepared to pay it. (Of course, the flipside is that they too are at liberty to reject your demands and go with another freelancer.)

Choosing your own timetable

One of the most shouted-about benefits of self-employment is the ability to organise your own schedule. Of course, there will likely be deadlines to meet and objectives to attain, but providing you fulfill your commitments, you’re free to work when and where you please. The only aspect of this will change when an umbrella company becomes involved is that you’ll be required to submit weekly timesheets.

Selecting your contracts

One of the necessary evils of many business projects is working with people you don’t see eye to eye with or toiling on jobs that don’t inspire you. As a freelancer, you can pick and choose which projects to undertake and which contacts to come back to for repeat work. Such professional freedom should not be underestimated for the job satisfaction that it can provide.

Building out a network

As mentioned above, building up a network of business contacts whom you know, trust and respect can be hugely rewarding in itself, but can also allow you to access like-minded clients and markets through word-of-mouth referrals and recommendations. There’s also a unique sense of pride to be earned in forging a reputation among your customers for excellent services which simply isn’t often found in a traditional employer-employee environment.

Having no boss

Perhaps the biggest draw for many self-employed people is avoiding the annoyance of a horrible boss by dispensing with one altogether. When you’re in charge, there’s no one to answer to except yourself. That alone is enough for many people to find the lure of freelancing irresistible, and an umbrella company is just like self-employment in that regard.

How umbrella companies and self-employment differ

Having said that, you shouldn’t expect things to stay exactly as they were when you enter into a contract with an umbrella company. Fortunately, most of the differences will manifest themselves in yet more attractive advantages, while the others are mere technicalities that alter how you are viewed by HMRC for tax purposes. Here’s a rundown of the major discrepancies you’ll notice:

Officially an employee

After reading of all the similarities outlined above, you’d be forgiven for thinking that working through an umbrella company is virtually identical to being self-employed. However, in eyes of HMRC, you’ll now be an employee on the payroll of the umbrella company, which means you’ll avoid the ever-widening dragnet that is IR35 contract law.

Statutory rights ahoy!

As an employee, you’ll also now officially be entitled to the statutory rights that every other member of the British workforce receives. That means annual holiday allowance, sick pay and maternity or paternity leave when the pitter patter of tiny feet come calling. Such luxuries are the stuff of dreams for freelancers without an umbrella company in their corner. Meanwhile, another pleasant consequence of this arrangement is…

No more tax returns

… no more tax returns! With an umbrella company taking you onto their workforce, they’re legally obliged handle all the cumbersome calculations and paperwork with regard to your tax commitments. For those who spend days on end filling out a self-assessment form and an equal or greater amount of time fretting about the process, the weight that this lifts off the shoulders is wonderful.

Assurance in compliance

Not only do you not have to complete a self-assessment form, you won’t need to worry about having crossed all the i’s and dotted all the t’s, either. Umbrella companies have dedicated teams with years of experience in jumping through the various hoops that HMRC demands, meaning when you receive your wage, all of the deductions will already be taken out of it.

A regular wage

On the topic of wages, the convenience of a regular income should not be underestimated, especially for those looking to secure or trying to maintain a mortgage. Of course, the umbrella company will also deduct a fee for their services, but it’s likely to be a small price to pay for the peace of mind and convenience that an umbrella company brings.

Balancing both worlds

For all those reasons listed above, it only seems logical that for freelancers looking to access the pros of employment while shedding the cons of going it alone, the answer is an umbrella company. Self-employed people are increasingly turning to the practice to improve their working situation, with hundreds of thousands of individuals now working through an umbrella company.

In response to that demand, an abundance of firms have sprung up, offering a range of differing levels of service and making it confusing to know which one to pick. That’s where Umbrella Broker come in. Using our handy umbrella comparison tool, you can see at a glance how your different options stack up against each other, ensuring you settle upon the company that’s right for you.