Do I Need An Umbrella Company?

| July 14, 2015

Understanding an umbrella company is fundamental before contracting such a company. The main purpose of umbrella companies is acting as an agency contractor’s employer and they usually work on a fixed term agreement assignment.

umbrella-company

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Understanding an umbrella company is fundamental before contracting such a company. The main purpose of umbrella companies is acting as an agency contractor’s employer and they usually work on a fixed term agreement assignment. They normally bill clients and track expenses and incomes of their clients. Other times umbrella companies also reserves taxes from payments and hence the umbrella company now becomes the employer while the freelancer contractor turns to be the employee right inside his own corporate or business.

They generally function through a recruitment agency which later issues out contracts to limited companies. The next thing after fully grasping the definition of an umbrella company is to know its importance or why it’s needed. Umbrella companies are employed by independent contractor umbrella companies who are expected to surrender their invoices for their clients’ work and at the same time being held responsible for their own insurance contributions and income tax.

These independent freelancers or contractors may choose to have their own limited companies doing this for them also but most of them prefer contracting umbrella companies to avoid hassles and the responsibilities that come with this work. So the umbrella company raises invoices on a contractor’s behalf for the days or hours they work. Then once the independent contractor’s funds are received from their customers or clients, umbrella companies make payments to them (contractor umbrella companies) with all the necessary deductions having been already made.

Independent Contractor umbrella companies are permitted to make claims of certain business expenditures as would happen if they had their own limited companies and this is later managed by the umbrella company. Umbrella companies usually make payments to contractor umbrella companies by means of Pay As You Earn (PAYE) and they should receive a pay slip from the umbrella company as they would in a permanent job. Apart from claiming expenses, contractor umbrella companies are also liable for their own insurance contributions as well as their umbrella companies.

Local inland regulations are the bodies controlling all umbrella companies. It’s important to remember this because the bodies will dictate the expenditures that contractor umbrella companies will be claiming. One should always check well if there are any hidden charges before signing up for an umbrella company because at times they differ immensely. A reliable umbrella company ought not to charge the independent contractor according to what they earn.

The reason here is there is no extra work that is involved for them. Ensure that reasonable amounts are always paid to umbrella companies after a thorough calculation from the earnings. For contractor umbrella companies to claim expenses, they must give proof of the expenditures that have been specifically incurred during employment.

Essentially, there cannot be any claim without spending and without the proof of the expenses there cannot be claims. Of importance before signing up with an umbrella company, contractor umbrella companies should research well and have time for questions. It’s important to know how long they have been in the business and how many clients they have had.

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