Knowledge Base
Advantages & disadvantages of Umbrella Companies
20 April, 2010
Umbrella Company Advantages
- Avoids time and effort in running a Limited Company
- Avoids cost and time required to setup and dissolve a Limited Company for a short term assignment
- Weekly/monthly tax deductible management fee only while working
- Umbrella Companies handle all statutory returns such as PAYE and VAT
- Very little administration is required by the contractor
- After setting up, the contractor completes timesheets and expense claims
- Fast online services that include contracts, timesheets, invoicing, payments, tax etc.
- Umbrella Companies issue pay slips that show calculations
- Spendable income is paid directly into the contractor’s bank account
- Some insurance and pension cover
- Good customer support team
Umbrella Company Disadvantages
- Umbrella Companies are commercial operations seeking to make a profit. However the extra cost is relatively small
- It is not your own company and you have no control over the company; it is a way of process your transactions
- The contractor cannot represent himself as running his own business, make policy decisions, take risks or act as company director
- There is often a time delay in receiving payment, usually due to the Umbrella Company waiting for funds to clear its account before paying you. Some pay on the same day that funds are received but others only make payments once or twice a month
- There has to be an element of trust on the part of the contractor, as their money will be passing through the umbrella company bank account
- Long term contractors whose contracts are outside IR35 umbrellas are not as tax efficient as using a Limited Company
Summary
Umbrella Companies make life easier for contractors in terms of financial transactions and tax payments and leave the contractor more time to concentrate on earning more money.
Be careful if an Umbrella Company offers services that reduce income tax or National Insurance contributions as this is illegal.
Be aware that no matter whether you earn $50 or $500 a day the amount of work done by the Umbrella Company would be the same and therefore their fees should not be based on earnings.
If the fees paid to the Umbrella Company exceed $50 a week it is certainly not a good deal.
Research online to find the best deal for you and talk to other contractor about their Umbrella Companies as this is often the best way of selecting the better company.
If you are a contractor and are looking for a compliant payroll solution, give us a call today to discuss our services. We provide no-obligation advice on the best solution for you.