Umbrella Company In Freelancing Sector
Umbrella Companies are basically companies that supply as employers to freelance contractors working on fixed term contracts and which remove the hassles of invoicing, payment collection from clients (or agencies), organizing national insurance and calculating tax from contractors. The individual contractors will work on their contracted employment as usual, but at the end of the week they simply submit expenses and timesheets to their umbrella company. Thereafter that umbrella company handles all the paperwork on their behalf.
Many self-employed contractors have in recent years moved again from Umbrella Companies to Employee Benefit Trusts which offer many further advantages. This means that a freelancer or contractor can work their contract as normal, but at a fixed point, normally the end of the week or month, they give in timesheets and expenses forms and leave the rest to their best umbrella company.
An umbrella company will naturally charge fees for their services but most contractors view it as a small price for the tax relief they can offer and the removal of some of the hassles associated with Managed or Limited Companies.
An umbrella company essentially acts as an agency. They invoice the client company on behalf of the contractor and charge the contractor a fee for doing so. This means that the contractor will end up taking less money away from the job than they might have intended. Due to the nature of the business, an umbrella company may well treat the contractor as an employee of the company and pay them in this way, subject the invoiced money to tax and NI contributions which might not otherwise have been paid.
The purpose of Umbrella Companies and the reason the Fed supports them is because they are meant to drive growth in the business sector. Many people simply would not have the resources necessary to start a business without an Umbrella Company. That being said, not every It will have your best interest at heart. Before you join any Umbrella Company, take time out to investigate what the Company is all about. What are the entities underneath it saying about it? Does it have a good, solid history? Is the background a little shady? You may even consider checking the credit report of the it and see whether they have any outstanding debt.
The purpose of Umbrella Companies is to help you, but that does not mean that all of them have your best interest in mind. Don't allow your business to get hurt simply because you sign documents in ignorance. As a member of an Umbrella Company, you are essentially a full-time employee and you should receive all the benefits that an employee would. If you are not being given benefits that all employees are entitled too, then you should question the legitimacy of the Company.
A few contractors think that Umbrellas do not offer enough relief and still necessitate a large deal of paperwork. Therefore the coming in recent times of more refined tax solutions for contractors, the so called Umbrella Company , such as Employee advantage Trusts which offer up to 85% gross to net returns.