Many contractors and freelancers in the United Kingdom use umbrella companies as their preferred choice of payroll provider. However, some of your candidates will be better suited to an umbrella company than others. Here we have a look at who should use an umbrella company for their payroll.
Whatever your candidate’s profession, using an umbrella company may well be the most practical service to support their career as a contractor or freelancer. If you are unsure which of your candidates should use an umbrella company as their payroll provider, the following information should be useful.
Becoming a contractor or freelancer for the first time can be a daunting challenge for your candidates. There are so many exciting benefits available to them as their own boss, but they will also be faced with a number of important decisions that workers in a full-time role do not have to worry about.
By signing up with Churchill Knight Umbrella, your candidates will officially become an employee of ours and will receive the same benefits as an employee in a full time position including Sick Pay, Maternity Pay, Paternity Pay and Annual Leave. We will pay your candidates a PAYE salary and take care of their tax and National Insurance Contributions (NICs). Once they have successfully joined our services, the only administration they will be required to carry out is the uploading of signed timesheets to our online portal and sending a copy to your recruitment agency.
Hopefully their initial assignment will be the first of many and the start of a successful independent career. However, if your candidates decide that being a contractor or freelancer is not for them, using an umbrella company is not permanent and there is no tie in period, leaving fee or joining fee. Consequently, if they decide to go back to being a permanent employee, they will not face any unexpected and unreasonable charges. Using an umbrella company is the perfect choice for those looking to dip their toes into contracting and freelancing without any long term obligations.
If your candidates are earning £15 per hour or less, using an umbrella company will help them legally maximise their take home pay. This is because the other most popular payroll option for contractors is setting up a limited company and becoming the director. There are some attractive tax savings available to limited company directors but some of the costs associated with running a limited company may prove prohibitive to a contractor or freelancer on an hourly rate of £15 or less.
The 2016 Autumn Statement proposed some changes to legislation affecting off-payroll workers in the public sector. HMRC went ahead with these and enforced the changes in April 2017. This resulted in workers operating through a limited company in the public sector being no longer able to determine their own IR35 status. This responsibility is now that of the public sector client. The body that is responsible for paying the workers’ limited company (often a recruitment agency) must ensure the legal tax and NICs have been paid to HMRC on the workers behalf via Pay As You Earn (PAYE), or they could be heavily penalised.
Because of this new legislation, many organisations in the public sector are either declining the opportunity to work with contractors operating through a limited company, or are classifying everyone working through their own limited company as inside IR35. This has been damaging for public sector workers because they will have undoubtedly seen their take home pay decrease.
Working through an umbrella company will ensure that all of your candidates in the public sector are paying the correct tax and NICs. Whilst it may not be the most efficient way for them to maximise their take home pay, some public sector organisations may insist that workers use an umbrella company or their contracts will not be fulfilled. It also means that your recruitment agency will not face any potential investigations by HMRC because your candidates will be paying tax and NICs as if they were a full time employee. Your agency will not be the body paying them directly because Churchill Knight Umbrella will be, further reducing the chances of a potential HMRC investigation.
If your candidates already have a limited company set up and are unsure what to do, Churchill Knight Umbrella may be the ideal solution. Your candidates’ limited companies can remain dormant and they can still use our umbrella service for however long they require. If or when they decide to continue trading through a limited company is completely up to them.
More information on the legislative changes to off-payroll workers in the public sector is available here: IR35 and Public Sector.
There is much debate as to whether setting up a limited company or using an umbrella company is the best way to go forward when contracting or freelancing. Having carried out their own research, your candidates may decide that they simply do not want the burden of running their own limited company and if this is the case, an umbrella company is the perfect payroll service for them. This is because they will be able to work on the assignments they choose whilst not having to worry about the complex administration associated with being the director of a limited company. If they change their mind along the way, setting up a limited company is always a feasible option and switching to Churchill Knight’s contractor accountancy service is free of charge.
It is important to remember that everybody’s circumstances are different and therefore if you are unsure whether an umbrella company is suitable for your candidates or not, give us a call on 01707 671645. Churchill Knight & Associates Ltd provides both contractor accountancy and PAYE umbrella and has helped over 20,000 contractors get paid in full compliance with HMRC legislation. Churchill Knight is proud to be partnered with hundreds of recruitment agencies and take pride in the fact that every individual relationship is different. Whatever your agency requirements, please get in contact with us to discuss how Churchill Knight can help grow your recruitment agency.
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