What is an Umbrella Company?

Making the leap from full-time employment to contracting can be both an exciting and scary venture.

Leaving the security of a steady pay cheque and statutory benefits can often be cause for concern, especially for those contractors that are unsure if it will be a permanent career change. In these cases, a contractor may choose to enter into an agreement with an umbrella company.

According to the Department for Business, Innovation & Skills (DBIS), an estimated 14% of Britain’s contractors work under an umbrella company. This option, compared with a limited company, has steadily risen in popularity in recent years, with more and more independent contractors opting to go this route. There are many benefits to working under an umbrella company, but is this method right for you?

How an Umbrella company processes payroll

An umbrella company essentially acts as an employer for independent contractors, processing PAYE pay slips for all work completed, without the contractor having to take into consideration IR35 legislation.

An umbrella company pays the contractor for their billed hours, taking care of all taxes and national insurance contributions in the process. As a contractor, in addition to having your payroll seen to, you also have all of your statutory rights protected, including those to maternity pay, sick pay and holiday pay.

Umbrella companies have been around for a number of years, but came to prominence post-1997, and especially so in 2000 in the wake of changes to IR35 legislation. In a bid to crack down on tax avoidance, HMRC put in place stricter rules for compliance to determine if contractors fell short of the criteria for self-employment, and could therefore be deemed employees “hiding” from Inland Revenue. Umbrella companies became popular, as contractors working under them are in effect employees, and therefore don’t have to worry about IR35 legislation.

That said, there are numerous other things to take into consideration. As such, many recruitment agencies will actively advise contractors to work with an umbrella company to avoid common pitfalls, and ensure their legal and financial rights are protected.

How is an umbrella company different from a limited company?

As the owner of a limited company, when you perform work for a client, you invoice them directly. You are responsible for forming a limited company and registering it with HMRC, as well as dealing with the finances coming in through a designated bank account, and managing the taxes paid on and expenses offset against these earnings. You are in complete control of your income and outgoings, but for some contractors, this situation is far from ideal.  Even with the assistance of an experienced accountant, it can be a daunting and time-consuming task to get to grips with VAT slips, expenses and taxes. If you are in need of some assistance, an umbrella company can take care of all of this for you.

An umbrella company invoices the client directly on your behalf, and is then responsible for paying your “salary” once the invoice is settled. This salary is termed PAYE, or pay as you earn, and the umbrella company is responsible for subtracting all relative national insurance (NI) and taxes from it. You can still claim some basic expenses, and are responsible for submitting your timesheet to your employer (the umbrella company). Tasks such as invoicing, collecting payment, dealing with overdue charges, filing tax returns, navigating legislation and handling national insurance deductions all fall within the realm of an umbrella company, freeing up your time as a contractor significantly.

How can Futurelink Group help?

If you want to receive all the benefits of being an employee whilst retaining the independence of a contractor, Futurelink Group offers a number of affordable umbrella PAYE solutions to help you achieve just that.

Our umbrella solutions are completely compliant, and a safe alternative to registering as a limited company. If you are new to contracting, or want to give it a “trial run” before committing to contracting full-time, our umbrella PAYE solutions can be hugely beneficial. Our experts can clarify important information and guidelines, and this experience can prove invaluable if you are just starting out.

With a limited company, you can claim a wider range of expenses than with an umbrella company, such as hardware, subscriptions to relevant trade magazines or software, travel and accommodation, accountancy fees and more. However, with an umbrella company, you can still claim some expenses, and your taxes are more straightforward. Because we take care of your national insurance contributions and tax, you’re not responsible for submitting anything further once you’ve received your take-home pay.

Our umbrella solutions are best suited to short-term contracts, making them a great choice if you are new to contracting or are planning to contract on a temporary basis (such as after being made redundant). With Futurelink Group, we take care of your paperwork, providing you with more free time to take care of your core business. This set-up is ideal if you don’t plan to enter into contracting full-time, as you get to skip the time, money and hassle associated with forming (and later dissolving) a limited company. Our umbrella services are also the most economical option if you are working on contracts valued at less than £25,000 per annum, after which you may wish to consider our limited company services.

We can assist with auto-enrolment pension schemes as well as a number of other accountancy services, providing round-the-clock support to our contractors. With umbrella solutions from Futurelink Group, you don’t have to worry about following up on payments and chasing outstanding invoices. We take care of processing client payment for you, and notify you by text and email whenever you get paid. With our help, you can enjoy faster, hassle-free payments, along with more time to dedicate to your core competencies and clients.

At Futurelink Group, our compliant contractor solutions can help self-employed individuals throughout the UK make the most of an umbrella PAYE system. To find out more about how we can help, get in touch with a friendly Futurelink Group adviser today.

“I’ll most certainly pass on your details to people I know. You run a great service there, keep up the good work.”

William Cadden, Self-Employed Contractor

“For me, Futurelink Group was the best solution, as a foreign and a lack of knowledge of the UK rules, they were extremely helpful in all aspects. Always fast in answering all my questions. I almost didn’t do anything and they put me on track to invoice and receive my payments. I can fully recommend them.”

Ronaldo, Umbrella PAYE contractor

“WS Contractors Ltd are extremely happy with the services that Futurelink provide. The efficient and friendly staff are always willing to help and assist. The feedback from our operatives is positive and pleasing. We would recommend Futurelink to all new recruits joining our team.”

Michelle Hughes, WS Contractors Ltd

“We at Gemini would like to thank you and your team for all your help and support in connection to payroll solutions. We find Futurelink Groups approach to be responsive to action when required with a courteous and bright manner – keep up the good work!”

Frank Mcfarlane, Gemini Security Services Ltd

We have strict compliance procedures in place, we are ISO:9001 accredited and we also carry out regular independent audits of our processes so you can be sure you are in safe hands. Companies within our group have been accredited with the following:

Futurelink Group consists the following companies, all incorporated in England & Wales: Futurelink Group Ltd (0620 6129), Futurelink Accountancy Services Ltd (0532 0147), Team Construction Ltd (0493 5270), Horizon RCS Ltd (0620 6202) and Horizon RCS Europe Ltd (0620 6136). Privacy Policy | Terms & Conditions