Learning about Umbrella Companies

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If you are a contractor in the UK and do not yet know what umbrella companies are all about, they are something that you should learn about as they can assist you in making more profits. You can learn about umbrella companies online but basically they are a company that when you join them, will list you as one of their employees, making you eligible to make claims for expenses which you would not be allowed to do as a self-employed contractor. Becoming part of an umbrella company is very popular with UK contractors as, as well as allowing them to be able to make claims for expenses; it also saves them the problems associated with paying workers and invoicing clients.

As the contractor’s “employer”, the umbrella company will be responsible for paying the contractors workers but of course the contractor will still have to provide them with weekly worksheets so they can pay the workers correctly. This means that the umbrella company will have the concerns about how much tax and NI contributions to stop from a worker’s pay. As the employer the umbrella company will also be responsible for invoicing the contractor’s clients and collecting payments on those invoices. This means that as well as being able to make additional claims for expenses as part of an umbrella company, a contractor will also find themselves with more time to look after work in hand and looking for new contracts due to the less administrative tasks they have to do themselves. It is this reduced administrative tasks that a contractor has that make the choice of becoming part of an umbrella company so attractive as opposed to the other option they may have. The other option that a UK contractor has which would enable them to make claims for expenses is to register them as a limited company. Although being a limited company, a contractor may be able to make even more claims for expenses than they could as part of an umbrella company, without the umbrella company, the contractor will have to do all the administrative work themselves and in order to maintain that limited company status, even more paperwork will be needed.

Paperwork is always a bind for contractors and although one option would be to hire an administrator to do that paperwork, that option could be expensive, especially as they will still not be able to claim expenses. In order to become part of an umbrella company, a contractor will of course have to pay a fee but that fee will be an agreed amount prior to the contractor becoming an employee of the umbrella company. As the umbrella company collects payments from clients of the contractor and places those payments in the contractor’s bank account, they will usually subtract any fees they are due from those deposits, giving the contractor still one less thing to concern themselves with. Not only are UK based contractors taking advantage of the benefits available by becoming part of a larger company but offshore contractors are also availing themselves of those benefits.