What is a contractor umbrella company?

A question that comes to the mind of many people that want to start contracting is “What is a contractor umbrella company?” and therefore, we are going to take our time to describe and explain just what a contractor umbrella company is and what use one might have for them. So, sit back whilst we go through the in’s and out’s that is provided by a contractor umbrella company.

contractor umbrella company

The blunt description of a contractor umbrella company

Sufficed to say, a contractor umbrella company is a company that seeks to employ agency contractors who will work on certain temporary contract assignments, usually through a recruitment agency in the United Kingdom. A recruitment agency then issues various contracts to the limited company, decreasing liability to the agency.

Contractor umbrella companies have become a lot more popular in the last few years due to the British government introducing the IR35 legislation that is enforced by HMRC. This legislation is explained in one of our many articles in our website here at Comparison Contractor but we will give you a brief explanation as to what it means for contractors.

The IR35 legislation is meant to determine the employment status and ability to make use of some of the small company tax reliefs. Therefore, making contractor employment quite advantageous to the individual that would like to go ahead and be party of a contractor umbrella company.

How does a contractor umbrella company work?

The structure of an umbrella company is quite easy to understand and get behind. In the simplest manner, the individual fills out a timesheet which is then passed over to the umbrella company who processes it and invoices the client for payment. Easy and simple.

The contractor who works for the umbrella company completes work, completes his/her timesheet and submits it along with the expenses claims they might have to the umbrella company.

The umbrella company whom the contractor works for provides payroll on behalf of the contractor, which means that they then bill the agency for the work completed by the contractor.

Of course, the agency recruits the contractor through the umbrella company on behalf of the client. Most agencies provide a PAYE scheme as part of their offer when coming on board.

The final part is the client who sends pay down the line. Effectively the contractor works for the client. A lot of clients use this method as they don’t have to follow the legal requirements that permanent employees represent. Of course, using contractors is a lot better when it comes to specific skills and requirements. As contractors have usually been within their field for 15+ years.

contractor umbrella company

Are there any differences between expenses in different contractor umbrella companies?

Sufficed to say, there aren’t that many differences between most contractor umbrella companies. The only difference that you can really see is the difference between the margins of pay, schemes that are run by those individual companies and clients that are on the table to work for.

When it comes to expenses you will rest assured knowing that all contractor umbrella companies use the same PAYE calculations to find out how much tax you need to be paying.

When it comes to what expenses you can claim we have an article about them that you can read on our website, however, for putting a brief description of what we are talking about we will include a little bit.

The common expenses that you can take as a contractor, include hotels and accommodation expenses, professional subscriptions like books and travel expenses like mileage and train fares. Sufficed to say these are the standard when it comes to expenses.

Food is something that you will rarely be allowed to claim due to you having to eat anyway, however, if you are away from home then there is a small possibility that you can claim for eating if not at home.

As you can tell, there is quite the amount of benefits to becoming part of a contractor umbrella company. For example, you will receive the standard set of statutory payments like Holiday pay, statutory sick pay and maternity pay.  You will also have other employment benefits like legal support, clinical counselling, dependency care and much more.

Get in touch with Comparison Contractor today

If you want access to the many benefits that come by working with a contractor umbrella company then why not fill out one of the many forms on our website. Then one of our team will give you a call and discuss what we can do for you and your future.