Umbrella companies are a business that contractors can join enabling them to be classified as employees, preventing them from being defined as self-employed or from forming their own limited company. The umbrella company then acts as an intermediary, managing and facilitating contracts and payments between clients and the independent contractor. In recent years, especially during uncertain financial times, they have been seen to rise in popularity around the UK, allowing contractors to work more easily and with great confidence.
One of the qualities that continues to make make an umbrella company a popular option for contractors, is that they ensure contractors make the appropriate tax contributions, alleviating them of accountancy responsibilities and any potential mistakes. This is a particularly significant asset as the IR35 tax law continues to loom over many heads, with amendments being made to its legislation in April 2021. In addition to HMRC compliance, there a number of other reasons why contractors continue to seek out umbrella services over alternatives.
For most contractors, their day-to-day business consumes much of their time and energy. This leaves the prospect of establishing their own limited company under which to work an extra and undesirable hassle. Other contractors may only be working for a certain period of time and, as such, the responsibility of creating a company is unappealing.
By the same token, becoming an ‘employee’ and seeking out options, such as umbrella payroll from People Group Services, means that the administration involved with running a company is handed over to a dedicated team. This team will maintain and store your records, including essential tax paperwork, such as VAT slips and receipts, safely, taking the obligation and hassle away from your operation and daily tasks.
Utilising the support of an umbrella company also ensures you will receive benefits, such as sick pay, pension, and, importantly, holiday. Another significant and desirable benefit is that they also allow freelancers and contractors to claim travel expenses, as well as to make tax-deductible claims. To claim deductions from your tax, such as for the purchase of software and essential equipment, you will need to ensure that you are HMRC compliant.
This can be particularly tricky, not only because HMRC are well-known for their scrutiny, but also because regulations can change and they require a contractor to remain up-to-date with recent developments. However, as mentioned above, umbrella services ensure absolute compliance.
Finally, working beneath an umbrella payroll service ensuring consistent employment. This is especially valuable to those who are planning on applying for mortgages as they present a more stable and continuous professional role as seen on your application.
It is, of course, important to remain vigilant when seeking an umbrella company as they require an element of trust, ensuring that they will be a positive support for your business. Before you commit to the services of an umbrella company, be sure to discuss their operation with them in advance. This will allow you to gauge the type of working relationship you will have, as well as any extra services they might be able to offer.