From IT to construction, the whole UK economy relies heavily on independent contractors to get things done. These flexible businesses are perfect for
From IT to construction, the whole UK economy relies heavily on independent contractors to get things done. These flexible businesses are perfect for fulfilling temporary contracts and taking on crucial work that needs to be done quickly. Many UK businesses will use independent contractors to help them complete temporary projects, meet deadlines, and provide specialist skills, staff or equipment as needed.
Of course, if you work as an independent contractor yourself, then you know how vibrant the industry is right now and what a key role it plays. Figures published peg the number of contractors in the UK employment sector at almost 2 million, which is a great rise from around ten years ago. This means that now is a fabulous time to work as a contractor and build up your own business.
Do you need to use an umbrella company?
There are many things to learn about when starting out as a contractor in the UK. One subject that you may have come across is that of umbrella companies. These are external companies that effectively act as your employer to contract out your services and handle a range of tasks for you around admin and payroll. But do you really need to use one?
To help answer this question, we look at the pros and cons of umbrella companies for independent contractors in the UK.
- Saves you lots of time – using this kind of company will save you time and hassle. They will take on a range of jobs, including sorting out tax and National Insurance deductions on your behalf each month, submitting timesheets to end clients and dealing with any queries. As they act as your employer, you are also eligible for PAYE, so the time spent on that annual tax return is also eliminated.
- Access to sick and holiday pay – another great benefit of using an umbrella company is that it gives you rights to standard employee benefits. These include statutory sick pay and holiday pay, which is a real boon for contractors. It is much better compared to getting nothing at all if you are not working due to leave or sickness.
- Less stress over MSC or IR35 – anyone who has been contracting in the UK for any period of time will know about IR35 and MSC regulations. The beauty of using an umbrella company is that you can forget about them! As all income is paid through PAYE, these can both be consigned to the dustbin.
- Support from expert staff – all umbrella companies will have specialist staff with the time and knowledge to keep on top of everything you pay them to do. This not only saves you the time of keeping track of the latest tax regulations but also makes contracting less stressful. If you do need help, then they will always be on hand to offer trustworthy support or advice.
- More cost-effective – compared to setting up as a limited company, for example, using an umbrella company is less expensive. There is no need to take out your own business insurance, for example, as most will cover this when you sign up. With no accountancy fees either, the money you save can soon add up. Although it is true that an umbrella company will naturally take their margin off your total monthly income, you should still save more overall.
- Less tax advantages – perhaps the main drawback with using an umbrella company comes in the form of the greater tax you will pay. In a nutshell, you will have to pay the standard employees’ NI and income tax but also employers’ NI contributions each month. Naturally, this extra requirement to pay the employers’ NI and employees’ NI will cost more than if you operate as a limited company, for example.
- Lack of control – of course, putting your trust in an umbrella company to handle your payroll and PAYE admin means letting go a little. This may not suit all contractors, who may like to be in total control of their invoicing and finances.
Umbrella companies – the choice is yours
As with everything in business, the choice of whether to use an umbrella company or not is a personal decision. Hopefully, the above has given you some extra information to base yours on and choose the right path for your business. There are many umbrella companies around now if you do decide to use one. Just make sure to research any thoroughly online to get the best around and one that you can work with well into the future.