If you’re a budding contractor who has decided to use an umbrella company, you might be wondering how you go about the process. Essentially, starting to use an umbrella company is very straightforward.
Once you’ve chosen your umbrella company and informed your agency, you’ll need to sign a contract between yourself and the company. This will generally be the umbrella company’s standard contract that specifies the terms and conditions of the service under which you will work and get paid.
Once you’ve done this and supplied your bank and tax information, you’re good to go. However, before you get to this point it’s important to carefully consider what umbrella company you’re going to use, in order to ensure you make the right decision.
Why use an umbrella company?
To help you choose the right umbrella company for you, it’s useful to look at the core reasons that contractors use umbrella companies.
Primarily, contractors choose to work with umbrella companies in order to avoid the workload that would come with running their own limited company. Working under an umbrella company means a contractor doesn’t need to get involved in things such as payroll, company accounts, VAT, taxation or software.
Furthermore, if a contractor is working on a short-term basis, then using an umbrella company is far easier and more cost effective than setting up a limited company, only to have to arrange for it to be dissolved soon after.
How to choose an umbrella company
Most freelancing agencies will generally recommend an umbrella company, based on the quality of service the company provides to both the agency and to contractors.
Some agencies will have fixed policies governing their recommendations and some may have commercial arrangements with umbrella companies, so it is worth asking why a particular umbrella company has been recommended.
There are a few main things that contractors should look at before agreeing to work with a particular umbrella company. First and foremost, are they tax compliant? Secondly, how quickly do they process payments to their contractors? If claimable, do they offer an expenses model? What kind of fees are involved in working for them? Finally, are they an experienced company?
When choosing, it is vital to remember that anyone can set up as an umbrella company, regardless of experience or qualifications. Therefore, it is crucial that you know exactly who you are getting involved with. While most are run by qualified individuals, these companies are going to be handling your money, so it is important to do your research before entering into a contract.
