Umbrella company
An umbrella company is essentially a middle man between you and the company you contract for. You are employed by the umbrella company (which means IR35 isn’t an issue because you pay PAYE/NIC on all your earnings) and they handle all the admin concerned with your contract such as invoicing, tax, VAT and National Insurance contributions for a fixed fee. Although you’re on their payroll, your pay is determined by your specific contract agreement, and they’ll invoice, chase and retrieve your money for you. Better still, they’ll help you claim all your legitimate expenses, offsetting them against tax. If you’ve no idea why that’s of interest, let us explain; because your monthly expenses are deducted from your salary before tax is applied, you only pay tax on the lower amount, which maximises your take home pay. Something we think you’ll find very interesting indeed!
An umbrella company is a great way of starting out, particularly if you’re not sure the contracting life is for you. You won't be surprised to hear that we recommend our sister company Parasol. You can dip your toe in the water without the commitment of setting up on your own. If it’s working out, further down the line you can think about a more permanent option, like a limited company.
Good choice if:
- You’re a contractor working on short term contracts from 1 day to 6 months
- You only plan to be a contractor for the short term
- You want to test the water and try contracting for a while before committing
- You have a natural aversion to paperwork and shudder at the thought of having to do a tax return
- You want to stay out of the whole IR35 debate
- You travel medium to long distances and claim travel and subsistence expenses
Not so good if:
- Your contracts last longer than 6 months
- You’re quite happy taking on responsibility for your accounts
- You don’t have internet access
- You can’t claim much by way of travel and subsistence expenses
- You’re a high earner, over £35,000 a year
