Umbrella Company
An Umbrella Company allows you to engage with and supply services to agencies or clients without the need to create and operate your own limited company. You will become an employee of the umbrella company and contractor employment contracts will be made with an agency to provide your services. The umbrella company will issue invoices on your behalf, collect payments from clients or agencies, calculate tax and National Insurance contributions and you will receive the net benefit paid directly into your bank account.
The Umbrella Company route will normally suit short term or one-off contracts, or first time contractors wanting a quick and easy way to start freelancing. Also, if working practices give the impression that you are an employee (inside IR35), then the Umbrella Company route is a legal and tax efficient way of managing this regulation.
A key feature of Umbrella employment is the potential to claim tax relief on business travel and subsistence expenses, commonly known as contractor tax . Any expenses chargeable to your agency or client, as per your contract terms and conditions, will be refunded to you in full. Expenses which are not chargeable will be processed as a tax benefit. This means that your taxable income will be reduced by the value of the expenses.
In return for providing umbrella payroll solutions and all professional insurances, your Umbrella Company will charge a fee, however, with the reduced administration, this route can provide a straight forward and efficient way of getting paid.
There are many Umbrella Companies operating in the UK. To help you make an informed decision we put together some information on choosing the right Umbrella Company
