What is an Umbrella Company?

What is an Umbrella Company?

Umbrella companies tend to be used by those on short-term contracts in between permanent roles or by those long-term contractors who do not want the added workload of running their own Limited Company.

Umbrella Companies provide ready made invoicing solutions for contractors whilst also removing the administrative burdens usually associated with contracting. The Umbrella Company normally issues invoices on the contractor’s behalf, collects payments from clients/agencies, calculates tax and N.I contributions and pays the contractor their net pay direct to their personal bank account. Click to read more about contractor expenses using an umbrella company.

The main advantages of using an umbrella company include:

  • Avoids the time of running a limited company
  • There is no need to be involved with running a spreadsheet, VAT returns, payroll matters, company accounts, taxation, etc
  • For short-term contractors, a main advantage is not having to go through the process of forming a company and then arranging for it to be dissolved

Click to read more about the advantages of using umbrella companies

Traditionally, Umbrella Companies were more expensive than running your own Limited Company, mainly because their charges included all the administration overheads, and they tended not to offer the same tax advantages. With the introduction of IR35 the tax disadvantages of Umbrella Companies have been reduced and a new breed of Internet based umbrella companies have emerged.

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'Contractor UK have more details on using an umbrella company here, plus a directory of umbrella companies.