Should I use an umbrella company?

Assess your options – limited company or umbrella company?

There are two main ways that contractors and freelancers get paid – through a limited company (personal service company) or by an umbrella company. There are pros and cons to both.

Limited Company

If you accept an assignment that is outside IR35 legislation, you may be better suited to a limited company. Why? Because you can take advantage of careful tax planning that allows you to retain more of your money with a combination of a salary and dividends.

If you have your own limited company, you should use a contractor accountant to help you with the day-to-day tasks that come with being a Director of a business. Contractor accountants typically cost more than umbrella companies, and you are likely to be responsible for significantly more administration that if you used an umbrella company for your payroll.

Our sister company, Churchill Knight & Associates Ltd, is a leading provider of contractor accountancy services. Please click here to visit their website.

Umbrella Company

An umbrella company is a payroll provider that will process your salary like a permanent employee (PAYE). This means your tax and National Insurance Contributions (NICs) will be paid to HMRC on your behalf. Providing you choose a compliant provider (look for an umbrella that is a member of the FCSA), you will have minimal administration and you’ll have nothing to worry about! The umbrella will charge a margin for their service, and this will only apply when they pay you.

Using an umbrella company is great for peace of mind – because they process your tax and NICs for you. However, you must be aware that you’ll have a lower ray retention, and you’ll be responsible for employment costs, including Employers NICs and the Apprenticeship Levy. If you choose an umbrella company as your preferred method of payroll, we recommend you let your agency and client know, so they can increase your contract rate to cover the employment costs.

Please visit the following page for more benefits of using an umbrella company.

IR35 and Using an Umbrella

If you are inside IR35, using an umbrella company may be your only option (PAYE). If this is the case, don’t panic. While your take home pay will be lower than if you were working through a limited company while being outside IR35, there are plenty of benefits available to umbrella clients, including:

• Statutory Employee Benefits
• Free insurance cover
• Same Day Faster Payments
• No hidden costs and no joining or leaving fees
• Minimal administration and an easy registration process
• Salary sacrifice
• Churchill Knight Rewards

Most umbrellas offer a very similar service. However, you must make sure you choose a compliant umbrella company. We recommend you only opt for an FCSA accredited provider – because they will have been thoroughly assessed and audited.

Interested in an umbrella illustration?

Please use the contact form on this page or click here to request a free and tailored take home pay projection from Churchill Knight Umbrella. We’re a member of the FCSA and have helped thousands of contractors get paid compliantly and efficiently.

Hopefully, the above has helped answer the initial question – ‘should I use an umbrella company?’ However, if you still have any questions, please do not hesitate to get in contact with our friendly team. We can provide you with answers to any outstanding questions you may have.

More information is available on our website: Who Should Use an Umbrella Company?