Up until 1999, freelancers and companies who required their services would work directly with each other in order for a project to be completed.
During that year a new method of working for those who are on a fixed term contract came into being; the umbrella company.
In their simplest form, an umbrella company will act as a go-between for a freelancer (or contractor) and their end client.
They will take on the administrative side of the working relationship and will specifically concentrate on aspects such as payroll and tax.
One of the services that an umbrella company will provide is the collection of income tax and national insurance contributions from the payment made by the “client” and pass this (minus of course their charged fees) to the contractor or freelancer who completed the work.
Another area of employment that is dealt with by an umbrella company is the initial contact being set out.
One of the biggest up points to using an umbrella company is that you will not have to deal with some of the more pesky sides of admin for your business. Tax, NI and payroll are taken out of your hands and dealt with externally.
They are seen as a way for those who wish to contract but are not ready to set up their own business to work and earn money with relatively low risk.
It seems that there are only positives to working with an umbrella company; but much like any service there are some downsides to opting to use one for your business.
One of the biggest downsides is that there are no benefits for contractors who work through an umbrella company. It also means that your PAYE and NICS will be deducted straight from your earnings.
There are also some different rules that relate to expenses claims for those who work through an umbrella company and these should be explored prior to you making a decision on which is right for you. In addition new legislation being brought in by the Government from April 2016 will affect expenses claims through umbrella companies.
The other common downside to using an umbrella company is being unable to understand the pay advice. Following the introduction of the Onshore Employment Intermediaries legislation many workers were moved into Umbrella schemes which was a new way of working for them. Often the payslips are seen as confusing and complicated to mask the fact the rates may be lower than agreed and disguise the fees that are being charged.
We can confirm, here at Hudson Contract that we do not act as an employer or agency to contract workers.
Instead we act as an employment intermediary who provides workplace auditing and contract services to construction companies which in turn ensures that they are always complaint with tax law and CIS legislation.