The Benefits of Using an Umbrella Company

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. 

How do you go about setting up a company

The question many ask is why set up a private limited company?  This question is asked mainly because setting up a company is likely to involve more administration and higher costs then if you remain as a sole trader.  The answer to this question concerns your personal financial liability.  If you are sole trader and your business fails, you are personally responsible for all of the business’ debts.  This means you are running the risk of personal bankruptcy if it is a large debt and you cannot afford to pay it.  By setting up a limited company you are protecting yourself against this.

Because a limited company is a separate legal entity it is therefore responsible for its own actions.  The finances of a private limited company are completely separate from those of the owner(s).  To a certain extent being a limited company might make you seem more credible to potential investors, partners and customers.

So how do you go about setting up a company?  Setting up a limited company will require you to register at Companies House.  By paying a small fee you can arrange for an accountant, solicitor or agent to do this on your behalf.  All you need to do is provide some basic information and a few signatures.  There are ready made limited company names that can be purchased if you wish to do so.  The alternative is to form a brand new limited company.  If you wish to do this you need to send a memorandum of association, articles of association and a completed IN01 form to Companies House.  A memorandum of association gives details of the company’s name, nature of business and registered office.  This document must be signed by the director(s) and in front of a witness.  The registered office of the company is the address where all correspondence from Companies House will be sent to.  The articles of association will set out the rules for running the business and also the regulations.  Companies House will not supply memorandum or articles and these can be purchased from a company-formation agent or a legal stationer.

A private limited company must have at least one director and they can also be a shareholder.  If a person has been disqualified from acting as a limited company director, are an undischarged bankrupt or are less than 16 years old they cannot assume this role.  Directors of limited companies are responsible for notifying Companies House of any changes to the structure and management of the company.  Company directors are also employees of the company and must pay income tax and Class 1 National Insurance contributions.