5 benefits of contracting through an umbrella company

There has been an ominous cloud looming over umbrella companies as of late. This is due to a recent budget announcement, set to take effect as of April 6th 2016, imposing the removal of travel and subsistence tax relief for umbrella workers and other workers operating under intermediaries.

This is a pressing concern for many, and is greatly impacting how the umbrella company is being perceived. Therefore, it is imperative to take note of these vital changes and to bear them in mind while making important, career-impacting decisions. However, it is equally important to state that these changes aren’t heralding the end of the umbrella company.

For many, umbrella companies still offer the best solution; especially for those who are on a short term contract or are contracting whilst looking at PAYE roles.

If you do your research, ask prudent questions and ensure that you find the right company to suit your needs, you will discover that umbrella companies still have a lot to offer.

Below are five notable benefits. 

• Fewer tax concerns

An umbrella company is perfect for contractors who would rather spend their time carrying out business than managing time-consuming and laborious spreadsheets. As an employee of a UK umbrella company, you do not need to concern yourself with issues such as paying tax or NI. These, along with your umbrella fee, will already have been deducted from the net pay you receive and you will have no further tax to pay. You will then be given a payslip, giving full details of how your pay was calculated. This will come as a significant relief to the first-time contractor, who may be intimidated by the reality of tax forms and legal deadlines

• Tax relief on business expenses

As an employee of an umbrella company, you can claim tax relief on expenses incurred during your assignment; these can be in the form of computers, training courses, office equipment and books. By claiming all allowable and appropriate expenses, you can reduce your tax bill. Remember to keep all receipts for the expenses you wish to claim. Any expenses without a receipt will be disallowed.

• Less administration

Working through an umbrella company is simple and hassle-free. As a contractor, you log your time with a timesheet, which is countersigned and forwarded to your umbrella company. The company will use this timesheet to invoice the client. For you, that is the extent of the requisite paperwork or filing, and you can just wait to be paid. You will not have to chase up late invoices, which saves you time to work and make money. You also have the added benefit of being protected in the event of a non-payment by the end client. As you are an employee of the umbrella company, you still get paid in accordance with your contract.

• Flexibility

You have the freedom and flexibility to move from a PAYE umbrella company to creating your own limited company, if you decide this option best fits your business model. This transition is not as easy going the other way. For this reason, umbrella companies are an attractive, low-risk option to those contractors who are either operating short-term or deciding whether a contracting way of life is for them. Unlike with a limited company, there is no setting up or shutting down expenses.

• Statutory payments

As an official employee of a UK umbrella company, you are entitled to statutory payments such as maternity, holiday and sick pay, much like you would enjoy as a permanent employee. You may also be given access to pension schemes and private health care, on top of insurance cover. Within the fixed umbrella price, you will be given Professional Indemnity Insurance, which will cover you in the event of legal proceedings.