What Is An Umbrella Company?

By Author: Gareth Hoyle
Total Articles: 675
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An umbrella company is a way for contactors to avoid the hassles of setting up and running their own Limited company. It provides the legal and tax framework you need to work as a contractor without the fuss. Effectively the umbrella company is acting as an employer for the private contractor who gets paid under PAYE terms, but can still claim things like meals, hotels and petrol as expenses.

They are very popular in the UK as a way of getting around IR35 legislation that was introduced in 2000 to stop small businesses from avoiding paying income tax.

How Does an Umbrella Company Work?

In its simplest form an umbrella company takes contracts from a wide array of businesses. These pieces of work are then given out to private contractors. In most cases the company offering the work pays the umbrella company who then deducts tax and their fee and pays the private contractor who actually did the work. Expenses are factored into the equation too.

Who Benefits From Using An Umbrella Company?

With an umbrella company all 3 entities involved benefit.

The umbrella company of course benefits ...
... themselves because they make money from the fees they charge to the contractor.

The private contractor also benefits because they do not have the hassle and overheads involved in running their own Limited company to worry about. They earn in the same way they would if they were running their own company in the sure knowledge that all their national insurance and PAYE contributions have been automatically taken care of. Contractors who work with an umbrella company can also benefit from having access to a wider range of contracts giving them more opportunities to work.

On top of that the firm who actually needs the work done also benefits. It gives them the ability to augment their staff when they need to with additional specialist labour without all of the financial commitments involved with taking people on as their direct employees. The NI contributions are covered by the umbrella company and they also take care of all of the work surrounding payroll and PAYE.

Plan It Solutions is a great umbrella company they are one of the most experienced in the field and offer a truly personalised service to each contractor.