Note To Contractors: Why Use An Umbrella Company

Posted on May 23 2014 - 4:32pm by Editorial Staff


If you’re considering the move into contracting, there are a wealth of considerations you need to make and some of the processes can initially seem daunting, particularly to those who have not previously worked on a freelance basis.

When most people think of contracting, their initial view is that this way of working comes with unmanageable amounts of paperwork and the need to be able to keep your own accurate and detailed accounts.

While operating as a limited company contractor comes with the potential benefit of legally minimising your tax burden, it does require a significant amount of admin. However, it is not the only option.

Umbrella companies such as PayStream can take care of the majority of unwanted paperwork. These workers retain the benefits afforded through the permanent employment route, including making decisions relating to where, when and how they work.

Before you can make the decision on your method of working, it is important to consider the IR35 legislation, which was introduced by HM Revenue and Customs (HMRC) in an effort to prevent disguised employment.

Although IR35 is tricky to interpret, it is generally thought that you are likely to be considered to fall inside IR35 if you provide your services personally, are told when, where and how to work by a client and you are obliged to accept offered work. If this is the case, employment by an umbrella company is likely to be the best option.

On the other hand, if these factors are determined by a client, it is highly likely you will fall inside IR35 and will not be permitted to operate as a limited company contractor. If this is the case, utilising the services of an umbrella company is likely to be the best option.

This does not mean this route is explored exclusively by those who are caught up in IR35. In actual fact, more and more of those working on a freelance basis are becoming umbrella contractors.

One of the main benefits is that the umbrella company will take care of all tax and National Insurance payments on your behalf, leaving workers free to concentrate on their contracts and their lives outside of work.

As an umbrella contractor, all you are required to do is submit a timesheet, which can now be done online in most cases. You will then receive your payments into a designated bank account.

Furthermore, you will be able to ensure clients receive the best possible service as you will not be required to worry about the administrative side of contracting and can ensure you remain fully focussed on the task at hand.

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Editorial Staff at I2Mag is a team of subject experts.