Can I use an umbrella company when working outside IR35

Contractors and freelancers in the UK commonly have two options for operating: being a director of a limited company or becoming an employee of an umbrella company. We answer a question commonly asked by contractors: “Can I use an umbrella company when working outside IR35?”

Can you use an umbrella company when working outside IR35?

The short answer is yes.

Working through an umbrella company offers an easy way for contractors and freelancers working on temporary assignments to get paid. Registering with an umbrella company can be done in minutes over the phone or via an online registration form.

Through this payroll option, there is no need to set up your own business or handle any administration besides submitting timesheets. Your umbrella company will handle all invoicing with your recruitment agency or end hirer, and they will handle all your tax obligations, including income tax and National Insurance. Please click here to learn more about the benefits of using an umbrella company for your payroll.

However, using an umbrella company for assignments outside IR35 is not the most tax-efficient way to operate. You will be taxed via Pay As You Earn (PAYE) – similarly to a permanent employee. For assignments that are outside IR35, you may be better suited to using a limited company.

What are your other options when working outside IR35?

If you work on assignments outside IR35, you may find it more beneficial to operate via a Personal Service Company (PSC), which is also referred to as a limited company. Setting up a limited company as a contractor means you become a business’s director and shareholder. Working through a PSC is a more tax-efficient way of getting paid as a contractor, as you can pay yourself through a combination of salary and dividends.

Our sister company, Churchill Knight & Associates Ltd, offers a compliant, FCSA-accredited accountancy service for contractors outside IR35; please click here to learn more.

Which option is the best for me when working outside IR35?

The best option depends on your contract length, terms, IR35 status, rate, and industry. If you are inside IR35, an umbrella company may be your best option. If you are outside IR35, the benefits of a limited company outweigh those of a limited company. However, if you do not want the administrative and bookkeeping responsibilities associated with becoming a director of a limited company, an umbrella company is a great option, as there is very little administration required when registering with an umbrella company.

Contact us today to find out more about our umbrella service

If you are interested in learning more about our umbrella service and the benefits of using an umbrella company for your payroll, please call our Sales Consultants on 01707 871622. You can also request a tailored take-home pay illustration or schedule a call to find out how much your take-home pay could be when using an umbrella company for inside and outside IR35 assignments.