How Umbrella Companies Support Global Expansion Plans
An umbrella company is a popular choice in the United Kingdom as a medium of employing agency contractors working on temporary or fixed-term contract assignments. An umbrella service gives you legal employee status and handles all the paperwork. It is the simplest solution for most contractors, with no unexpected tax bills. Because you have one continuous employment it's much easier to secure essential things like loans and mortgages too.
Structure of an Umbrella Company
On a high level, an umbrella company is a middleman between the employer and the employee. Your business will work with an umbrella company to find a contractor for your project. The next steps include:
Assigning the project to the contractor
The contractor will perform the work and supply the invoice or timesheet to the umbrella company
The company will then invoice you for the work
Finally, you pay the umbrella company, and they pay the contractor
The umbrella company manages benefits and withholding on behalf of the contractor which takes these responsibilities out of your hands. As a result, the contractors pay a fee or have money withheld from their pay to receive these services. It is a small price to pay for many contractors who would otherwise receive no benefits by working independently. Umbrella companies help you with short-term arrangements, compared to professional PEO companies that focus more on long-term ones.
Benefits of using an Umbrella company
One of the key benefits is, as an employee of an umbrella company, you are not out to statutory benefits:
Maternity Pay
Paternity Pay
Statutory Sick Pay
Access to a Workplace Pension
Also, the whole time that you are employed by that umbrella company, even if you switch between roles you count as having one continuous employer. So from a lending perspective, it may potentially help you borrow because you're employed by one person the whole time even if you work in different contract roles.
When shopping around for an umbrella company you will also see a lot of soft benefits. These include things like discounts on online retailers, cashback at petrol stations, etc.
Advantages of working through an umbrella company
It is one of the most hassle-free ways to work as you can be set up with an umbrella company service provider in a matter of minutes
Those kinds of companies are ideal for short-term contracts and if you are new to the world of contracting
Staying with the same umbrella company gives you continuous employment which is really important when applying for mortgages, so it makes the process easier when you are interested in getting a loan for rental property.
With umbrella companies, there are no unexpected tax bills as your umbrella company makes all the necessary PAYE (Pay As You Earn) and NI (National Insurance) deductions for HMRC (HM Revenue and Customs)
Disadvantages of working through an umbrella company
Although there are many advantages associated with umbrella companies, such as mentioned earlier, there are also risks and drawbacks.
Disadvantages of working with an umbrella company, are that first, working through an umbrella company is not as tax efficient as working through a limited company. Next, some umbrella companies might advertise a rock-bottom margin but rack up hidden costs, such as fees for same-day payments, providing a reference, or even issuing your P45 at the end of the contract. Additionally, some umbrella companies may tell you that you can claim tax relief on travel-to-work expenses with no tax consequences. Be wary of these suggestions because in most cases working through an umbrella company you are likely to be acting under supervision, direction, and control and as a result are unlikely to be able to claim for many, if any expenses.
Conclusion
An umbrella company is ideal for short-term contracts or your first foray into the world of contracting. Starting from the way umbrella companies are structured, the benefits of working under a such company, and the advantages of working through it, staying under the same umbrella gives you a continuous employment record and the right to statutory employment benefits.
