1st time Contractors Umbrella Company Guide

Umbrella Benefits

What are the benefits to first time contractors of using a contractor umbrella company?

A contractor umbrella company (or ‘brolly company’) treats freelance contractors essentially as employees of the contractor umbrella company. Your client or agent enters into a contract with the contractor umbrella for your services, and you enter into a contract with the contractor umbrella company. A PAYE Umbrella treats all your income as salary. This means you pay employers NI, employees NI and PAYE on all your income.

Advantages of using a contractor umbrella company for first time contractors include

• Peace of mind knowing that all contractor accountancy, taxation, legal and contractual obligations are met by your contractor umbrella.
• All your client billing, payroll management, expenses claims and tax deductions are being handled correctly through the contractor umbrella company.
• Contractor umbrella companies are the most popular solution for first time contractors. Umbrella companies are a tried and tested solution. Previously thousands of freelance contractors, especially IT contractors have chosen umbrella companies.
• The contractor umbrella provides a comprehensive end to end process, making contracting easier. From umbrella contract processing through to payroll and payments.
• Service agreements by your contractor umbrella company ensure that your weekly or monthly pay is taken care of and you get paid regularly and on time.

• Less time and trouble than running a limited company. After your umbrella contract is in place and simple set up, freelance contractors complete timesheets and forward to the umbrella company.
• Joining a contractor umbrella company service does not need a lot of energy or expertise and is perfect for first timers. There’s no need for IT or spreadsheet experience. Your money is lodged into your bank account and documents are sent explaining how the payment is calculated. No involvement with VAT returns, payroll matters, company accounts, taxation, etc.
• For short term contractors, the main advantage of an umbrella company, is not having the costly process of forming a company and then arranging for it to be wound up.
• You get a complete employment rights package and inclusion of comprehensive Professional Indemnity Insurance and Employers / Public Liability as part of the service.

What does an umbrella company do?

A contractor umbrella company provides a ready made invoicing service for contractors, removing the administrative duties normally associated with contracting via a limited company. The umbrella company issues invoices for the contractor, collects payments from contractor clients/agencies, calculates tax & NIC and pays the contractor their net pay direct to their personal bank account.

Joining a contractor umbrella company

Once you have received a contract from your agency, the process is very simple. Most contractor umbrella companies are able to set you up as a client within 24 hours.

If you have not already chosen a contractor umbrella company, now is the time to choose. Find out how to choose a good contractor umbrella company.

Joining an umbrella company means you become a PAYE employee. This means you have the freedom and flexibility to work where and when you want, with all the administration done for you.

Umbrella contracts

Inform your agent or client

Once you have chosen your contractor umbrella, inform your agency or direct client of the name of the contractor umbrella company you are using, so that they can prepare their contract with the umbrella company’s name as “contractor”.

Umbrella Contract Preparation and Signing

The umbrella contract is sent directly to the contractor umbrella company by your agent. This is signed by the contractor umbrella company and then forwarded to you for signing and checking.

Personal and Bank Details

The contractor umbrella company is likely to have a standard application form for you to advise them of your name, address and banking details for direct credit transfers to your account.

Tax Details P45

Send the umbrella company your form P45 from your last employer. If you do not have a form P45 they can issue you a form P46, which enables them to obtain a tax code to operate on the salary paid.

The Umbrella Contract

Some umbrella companies ask you to sign their own standard umbrella contract between yourself as an individual employee/shareholder and themselves. This contract specifies the terms and conditions of the umbrella company service under which you agree to work and be paid.

Up and running with your umbrella company

Your contractor umbrella company acts as your employer, for tax purposes, when you undertake a contract with an employment agency or a client. Once your umbrella contract is in place, you can start submitting timesheets.

Timesheets and invoices

Approved timesheets are processed by your umbrella company and invoices raised on your behalf. Once funds are received, then payment will be made to you.

Payment to contractors

Pay frequency varies depending on your agency, client and possibly your umbrella company. Once payment has been made you may receive a text message confirming payment and a payslip which details the tax and national insurance contributions that you have paid as well as your expenses claimed, your umbrella company’s fees and your net earnings.

Contractor allowable expenses

Your allowable expenses are processed by your contractor umbrella company. Expenses that are chargeable to your agency or client will be refunded to you in full. Those non-chargeable will be processed as a ‘tax benefit’. Any claim must be allowable by the Inland Revenue and must be a cost to you personally.

Contractor umbrella companies all have a Inland Revenue dispensation. This allows your umbrella company to process some expenses without recording on a P11D. You still need to retain your receipts. The only expense that you can claim without a receipt is a daily subsistence allowance.

Concerns for first time umbrella company contractors

A few things may concern you as a new contractor joining an umbrella company. Most good umbrella companies happily provide this advice service free of charge to first timers. IR35, tax and insurance can all be a concern for first timers but choosing the best contractor umbrella company ensures that these issues will not be a problem.