How to Start an Umbrella Company &
What Are The Benefits

To set up as an umbrella company contractor you do not need to actually set up a business, as you will be effectively working through the umbrella company as an employee.  This means that you will have much less administration to worry about and none of the usual hassle of setting up to work as self-employed.

Consider What Type of Work You Can Do

Before you start to work as an umbrella contractor, you should consider what type of work you can do and if you will be able to obtain contracts, usually through agencies, to carry out this type of work. 

The contracts you find will sometimes only be short term and the nature of the work is that they will be temporary so you never know for sure how long you will be working at any one time.  However, in return for the uncertainty of the work, you will usually be paid at a higher rate than you would normally expect if you were working as a permanent member of staff.

How An Umbrella Company Operates

The way an umbrella company operates is that once you find work, you will submit your time sheet online to the umbrella company, which will invoice the agency you are working through. 

When the invoice is paid, you will be paid by the umbrella company through PAYE.  This means that all of your tax and national insurance contributions will be calculated and deducted on your behalf.  You can often offset some income through expenses claimed for meals, travel or accommodation.

Benefits Over Limited Company

One benefit of working through an umbrella company rather than setting up as a limited company is that you do not need to worry about the IR35 legislation.  IR35 was implemented to prevent "disguised employees" from gaining tax advantages by working for an employer as a contractor through an agency but otherwise working in the same way as an employee. 

The effect of this legislation has been that many contractors working through a limited company no longer do so.  Contractors previously set up as limited companies may not now pass a number of tests that have been introduced as part of IR35 to determine employment status.

No Worrying About Latest Tax Clamp Downs

Another benefit of working through an umbrella company is that there is no need to worry about any of the latest tax clampdowns by HM Revenue & Customs, as all of the appropriate taxes are paid by the umbrella company.

Any type of contractor working in any industry can use an umbrella company to keep their tax affairs in order.  The umbrella company will charge a fee and so it might be worth shopping around to see what services are offered by alternative umbrella companies and for what cost.

Once you have decided that this is the way you are going to work, selected your umbrella company and secured your first contract of employment, there is nothing left but to register with your chosen umbrella company. 

This can normally be done online and once you are registered you are free to switch between contracts in the knowledge that your tax and national insurance payments will all be taken care of by the umbrella company on your behalf through it's PAYE payment solution.

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