Deciding whether to set up your own limited company or contract through an umbrella company can be a tough decision to make and there are certainly plenty of benefits to both. Umbrella companies offer a simple and straightforward method for getting paid and it is both quick and easy to get set up.
Continue reading to gain a better understanding of the benefits of using an umbrella company and why it may be the best option for you.
Umbrella company benefits
Using an umbrella company to process your payroll will give you complete peace of mind that all your tax affairs are taken care of and paid to HMRC correctly. Here are the benefits of using an umbrella company such as Bluebird Umbrella:
- You will only pay the umbrella company margin for the weeks that you are working – if you are not working you won’t pay anything!
- There is no joining fee, exit fee or tie in period, so you can use the service as and when you need.
- Registration can be done in a matter of minutes – fill out our online registration form here.
- As you are an employee of the umbrella company you will receive a weekly/monthly payslip – showing all the deductions to your pay such as tax and National Insurance Contributions (NICs). A full payslip history is extremely useful as it can be provided as a reference for loans or a mortgage.
- It doesn’t matter what industry you’re in, the level of experience you have or the contract role you have, an umbrella company can offer you a simple payroll service.
- You will receive Statutory benefits just like permanent employees – Sick Pay, Maternity and Paternity Pay.
- Working through an umbrella company gives you continuity of employment. This means you can work on multiple contracts alongside each other but you will still be considered one employee of your umbrella company. Your tax code will not be negatively affected and you won’t be overtaxed!
- Your umbrella company will process all payroll (including invoicing) – all you need to do is send your signed timesheets to your recruitment company or umbrella company.
- If you want to form a limited company at a later date you can do so for free with our sister company – Bluebird Accountancy.
- Comprehensive insurance cover – £10 million Employers Liability, £10 million Public Liability, £5 million Professional Indemnity
Should I work through an umbrella company?
If you are new to contracting and unsure whether it is something you would be happy doing long-term, working through an umbrella company offers a low-risk way to try it out. Additionally, you may be required by your end-client or recruitment agency to work through an umbrella company for the following reasons:
- You are working in the public sector and are inside IR35 (this will apply to the private sector from April 2020)
- You are impacted by off-payroll in the private sector (2021)
- You are working on a short-term contract which will only last for three months or less
- You are receiving an hourly rate of £15 or less as it would not be cost-effective to form your own limited company
The downside of working through an umbrella company
Whilst there are many benefits associated with working through an umbrella company, there are also a few disadvantages:
- Umbrella companies do not have the same tax benefits associated with limited companies.
- Many umbrella companies will not allow contractors to claim travel or subsistence expenses anymore, regardless of their Supervision, Direction and Control (SDC) status.
- You will pay both Employees and Employers National Insurance Contributions, as well as the apprenticeship levy – your recruitment agency should uplift your salary so the additional deductions will not negatively impact your take home pay. See our blog to find out more about the different deductions.
Be careful of non-compliant umbrella companies
Be careful of payroll companies offering you the chance to retain 90% of your salary after tax and NIC deductions have been made. This is simply not possible as the basic rate of Income Tax is 20% on all income received above the personal allowance. NICs are also due on earnings above £162 per week – at 12%. This means that if you are working for a compliant umbrella company or payroll provider you should retain around 60-70% of your earnings after tax. Any company claiming more than this is probably promoting a tax avoidance scheme. Only use umbrella company calculators that you can trust.
Bluebird Umbrella is fully compliant with all HMRC rules and regulations
Bluebird is fully compliant with all HMRC rules and regulations and you can rest assured that we will calculate and pay your tax and NICs accordingly. You may have noticed the Loan Charge (2019) in the news. This legislation is targeting users of tax avoidance schemes and is forcing them to repay tax that HMRC deems them to owe through disguised remuneration. Use Bluebird Umbrella and you’ll have absolutely nothing to worry about.