Choosing between an umbrella company and limited company can probably be the most challenging decision to advance your career trajectory. While both come with their fair share of pros and cons, umbrella companies are catching up to speed and getting a lot of popularity as the finest way forward for working professionals. Eventually, it all comes down to the perspective, contract terms and the preferences of contractors. Working under a fully established umbrella company definitely comes with a multitude of benefits. But how do umbrella companies work for contractors?
Let’s find out!
Easy Steps in Which Umbrella Companies Work
Step 1: The umbrella company starts by signing a contract (business-to-business) with the recruitment agency/end client.
Step 2: As a contractor, you will be required to sign an employment contract before starting the work with an umbrella company.
Step 3: The client will sign the Agency timesheet. The client is the individual or company with whom you will potentially be on an assignment. This signature will confirm the total number of days or hours that you have worked.
Step 4: After that, you will be required to send this signed timesheet from the client to the agency in addition to completing an online timesheet similar to the one signed by the client. This task will be carried out for the umbrella company in addition to any chargeable expense claims.
Step 5: Now, the umbrella company (not you) will raise an invoice on your behalf to the agency for the client to whom you have delivered work according to all the work done by you in addition to chargeable expenses.
Step 6: Thereafter, the agency will invoice the client for whom you worked in addition to chargeable expenses that the client agreed to reimburse.
Step 7: The client will then pay the agency.
Step 8: The agency will clear the payment with the umbrella company. The payment schedule of the agency will determine the date of the payment.
Step 9: After the payment has been received by the umbrella company, it will process it with any applicable chargeable expenses. However, it will deduct the NI contributions and necessary tax from your payment. Your payment will be made via PAYE or Pay as You Earn. Therefore, you will also receive a pay slip from the umbrella company, just like any other place of employment.
Step 10: You will finally receive your money sans the deductions in the form of Umbrella services margin, NI contributions, and tax.
Promises Made by Umbrella Companies
As mentioned above, you will be required to sign a contract of employment in order to work under an umbrella company. It is the umbrella company that will eventually raise all the invoices for the work done by you while on an assignment. Therefore, you will be saved from any and all worry of having to set up or run a limited company by yourself or appoint an accountant to carry out the task.
It is also pertinent to note here that all umbrella companies operate in the same way in the UK. All the payments that you receive is made via PAYE. Hence, the only real difference between umbrella companies is the margin they deduct from the take-home pay.
Some umbrella companies have also been known to make unlawful deduction without disclosing them ever since the introduction of the Agency Worker Regulations. Therefore, you must always confirm all the deductions as well as their reasons before you sign any contract. Umbrella companies usually make grand promises and claims that sound too good to be true. That is because they usually are! Hence, you must keep your eyes peeled and choose only the best and most established with a good track record to work under.
Cost of Working Under an Umbrella Company
Setting yourself up as an umbrella company contractor does have a lot of benefits. In addition to altogether avoiding all the hassles that come with running a limited company, you also do not need to involve yourself with VAT returns, company accounts, payroll matters, taxations, etc. You will also not need to undergo the expensive process of forming and running your own company and then to dissolve it in case you are a short-term contractor.
An umbrella company usually charges contractors on a weekly or monthly basis for availing their services. This fee is fixed and is a part of the contract so it cannot change during your tenure at an umbrella. It is essential for you to check the gross fee as well as the net pay after tax deductions before signing the contract. Big umbrella companies and giants in the industry charge anywhere between £25 and £30 weekly. On a monthly basis, these companies can charge anywhere between £80 and £130. Therefore, always ensure that you check all these details before signing the contract.
Why Choose Limelight Accountancy?
Limelight Accountancy can be regarded as a straight-talking, hassle-free umbrella company employing freelancers and contractors based in the UK. We are one of the most reliable umbrella company in the country and therefore, ensure the absolute compliance, security, and peace of mind of all our employees.
Working with Limelight Accountancy can get you a lot of benefits:
1. Quick and easy registration
All you have to do to work with us is register online, and that’s it! We will take care of the rest, and you just need to be ready to start working in 24 hours.
2. Same day payment
We offer same day payment without any additional fee as standard.
3. Employee Benefits
Contractors working with us can also enjoy a plethora of employee benefits such as Group Pension Scheme, Employee Rewards Scheme and much more. In addition to that, being in the industry for a long time with years of experience under our belt, our services really are every bit as good as they sound!
Get in touch with us for seamless employment services!