What Is An Umbrella Company?
It’s becoming more common for contractors to need to work under an umbrella company. It can make everything simpler and is a more efficient way (in terms of time) of managing your finances. When you work with an umbrella company, they’re your employer and you get all the benefits of being an employee.The Umbrella acts as an intermediary between you and your recruitment agency (or end client). This means you don’t have to take on responsibility of running your own personal company. The Umbrella will deal with administrative tasks like accountancy and tax, leaving you to focus on what really matters – your contracting work. Just like being an employee of any company payroll runs are done and you will be paid as part of those payroll runs. All the administration is on the Umbrella company, you simply have to submit time sheets. Tax, NI, pension contributions and holiday pay will all be taken care of for you.
The Umbrella market is unregulated. There are hundreds if not thousands of companies in the UK offering these services. The Umbrella company makes its money by charging each contractor a margin, usually between £15 and £30 for week you are paid (monthly figures vary from £40 to over £100). In general the fee structures used by Umbrella companies are rigid and your contracting day rate will not affect the amount you pay for the service. However several very large FCSA member Umbrella companies appear to charge based on your contract and not a fixed margin. This can make comparing Umbrella company returns worthy of your time.
So in short then an Umbrella company is a company that employs contractors reducing the administration burden and fulfilling all your IR35 requirements by making you an employee. In return they charge a margin for this service.