Becoming a contractor can come with a range of administration responsibilities that can cause you stress and suck up your free time. Contracting can be financially appealing but it can also be quite daunting knowing that you have to look for new contracts, negotiate with employers or agencies and manage your own finances and tax. Managing finance and tax issues can be a challenge for a good accountant let a alone a first time contractor.
By employing the services of an umbrella company you can ensure that your paperwork is greatly reduced and this will leave you precious time to concentrate on your contract, and more importantly enjoy your free time and work stress free. There are some major benefits to using a professional umbrella company which I will talk about below.
You will have a fixed monthly fee that will be arranged in advance with your chosen umbrella company services so you know exactly what your costs will be. There will also be no fees charged in periods when you are not working. If your umbrella company operates a good payment system you can also receive your money quicker. You should also be able to easily submit your timesheet and expense reports and most umbrella companies should have an online IT system that allows you to do this in a fast and easy manner. You should also be able to access your account online and view your historical details. Umbrella companies also offer a pension scheme and life assurance and can also provide private medical cover and travel insurance.
Operating under an umbrella company can free you from the hassles of setting up, and later shutting down a limited company. This is ideal if you want to trial a contracting career before making any long term commitments or if you are only going to be working as a contractor for a limited period of time. In some cases you may not want to take on the role of a company director and the option of outsourcing your administration tasks is an attractive one as it will leave you free to get on with your day-to-day work and not have your time consumed with tasks that do not create revenue, like chasing late invoices.
If you expect most of your contracts to be caught by IR35 then an umbrella company is a viable option. In these cases going the limited company route is not financially justifiable as you will still have to pay full PAYE and NI contributions.
In summary, the main advantage of using an umbrella company services is that it gives and alternative route into contracting for those who do not wish to take the plunge and set up their own limited company. Ensure you are aware of the business models available and also make sure you are clear in your mind what it is you want to get out of contracting. By doing this you will put yourself in the best position to enjoy an independent and rewarding career.