Umbrella Company

Joining an umbrella service means you essentially become a PAYE employee. Whilst you retain the freedom to work where you want, and for the time you wish all the company administration is done for you. The umbrella company will contract with the agency/end client and provide you with a contract of employment.

Benefits

a. Very easy to use, all tax and NI deducted before you get paid;
b. For short term contractors you only pay for the service when you are paid, you will not be charged between contracts;
c. The umbrella company provider takes care of all accountancy and taxation matters and also deals with all administration matters.
d. The contractor completes a timesheet and forwards it to the umbrella company, who then invoices the agent.
e. Avoids time and trouble of running a limited company. After a simple set up, the contractor completes timesheets and forwards to the umbrella company.
f. For short term contractors, a main advantage is not having the costly process of forming a company and then arranging for it to be dissolved and there are none of the responsibilities associated with running a limited company.

Disadvantages

a. You are reliant on the Umbrella Company to collect your money from the client or agent and then to pay it on to you;
b. You cannot represent yourself as running your own independent business;
c. There is inevitably some delay in the contractor receiving their money, since it needs to pass through a third party account before reaching them. This is down to the efficiency of the umbrella company.
d. There is an element of trust on the part of the contractor, since their money will be passing through the third party umbrella company bank account.