As a contractor, your time is money, and when you are spending time chasing invoices and filing paperwork, you aren’t billing time to clients and aren’t getting any value.
Umbrella companies are designed to change that situation. Umbrella companies provide a wealth of benefits but can an umbrella company save you time and money? Yes it can, and here is how.
How It Works
By using an umbrella service, a contractor basically becomes an employee of the umbrella company, but retains the flexibility of running their own business, including setting their hours, finding clients, and setting their own contractor rates. The umbrella service will commonly charge a set fee or sometimes take a percentage of pay to process all of the services it provides to the contractor.
The life of a contractor will always involve paperwork, and can account for an unnecessary bulk of your time. An umbrella service will take care of the invoicing, collections, tax preparation and filing for you, freeing you up to do more work and bill more hours. All that is required of the contractor is to register the billable hours with the umbrella service.
Using an umbrella service puts the burden on them to claim the proper business expenses to maximize your take home income. They also deduct taxes properly, before paying you, so there is no fear of an issue with your IR35.
The legislation surrounding payroll, from what taxes to deduct, and what to remit. to garnishments and VAT filings, payroll often requires some of the most intensity to perform correctly. An umbrella service takes care of this the same way they do as the primary contractor.
Short Term Ease
Sometimes a contractor can be working on a short term project. The headache that would be involved with forming a limited company, getting the bank accounts set up, registering the name, and then dissolving the entire process after the contract is done, is enormous. An umbrella service offers an easy to sign up, easy to terminate option for short term work.
Insurance and Benefits
Reputable umbrella services offer an insurance against being audited by the government. Since they keep all of the paperwork in order, they are confident enough to offer coverage for legal costs and fines in the event something goes wrong. Some umbrella companies offer benefits to the contractors as well, making this an added bonus, and an attractive incentive.
Comparing the Options
Long term contracting as a limited company can be profitable if you know how to run a business, understand vital employment and tax legislation, and are prepared to put in the long hours to ensure compliance.
For short term contracts though, or anyone that doesn’t want to waste hours they could spend making money sorting through legal documents, chasing defaulting clients, or dealing with piles of paperwork, an umbrella service offers a low cost, easy to manage method to maximize your time and money.