Using a PAYE umbrella company means that you as 'the contractor' become an employee of the umbrella company. As part of the process you submit timesheets to the umbrella company who will in turn invoice the agency (or end client) for the work that you have carried out. You are then paid by the umbrella company as a PAYE employee. As an employee, you will be issued with an employment contract and in turn will be entitled to employee benefits such as an expenses policy, salary sacrifice schemes, shopping discounts, professional insurances, to name but a few.
Umbrella companies offer many advantages for contractors
PAYE umbrella companies carry many advantages for contractors including:
- You avoid the hassle of running a limited company so you can focus on your contract. Let someone else do the work for you, providing you with the freedom to enjoy your time with more enjoyable activities.
- No need to search for reliable accountants, completing VAT returns, company accounts, worrying about expenses, taxation, mortgage applications etc. As an employee, you do not have to worry about anything as the umbrella company operates as your employer.
- Forming and maintaining a Ltd company is expensive for a short term contract. If you will be contracting for 3 months, forming a Ltd company is not cost effective as your account is set up for a minimum of 1 year.
- Umbrella companies UK are ideal for those who are unsure about contracting or are simply contracting as an 'in between' job as there is minimum input required.
- As an employee, the umbrella company will provide you with employee benefits such as their umbrella expenses, professional insurances, salary sacrifice schemes, pension and life insurances, service guarantee, training courses etc.
- All your tax and NIC is up to date through an umbrella company as your payroll is processed through PAYE. Your tax and NIC liability through a Ltd company is processed at the end of the financial year so you will have a tax bill to pay.
- You do not need to worry about IR35 legislation through an umbrella company as you are an employee. It is advisable to check your IR35 status, if you are setting up your own account.
You do not need to buy professional insurances as your umbrella company will provide these. You are responsible for purchasing your own if you choose to set up your own Ltd company.
- As an employee of the umbrella company you are usually able to claim umbrella company expenses that are incurred as a result of the contract. These are business expenses that HMRC allow the umbrella company to pass onto their contractors.
See all the benefits for yourself, in Tarpon's free umbrella salary calculator.
To speak to one of our tax experts call 0800 434 6402.
