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Umbrella Companies

An umbrella company is like a middle man, it is an organisation that employs freelance contractors and then each contractor goes and works for their end clients.

For example:

  • You are a contractor and get a contract through a recruitment agency with lets say the BBC.
  • You are advised by the recruitment agency to use an umbrella company as the means of getting paid (the recruitment agency advises this because they get a healthy commission from the umbrella company - remember the recruitment agency is a recruitment agency and not a firm of tax advisers, they can not give you the whole picture).
  • You start your contract working at the BBC and send your working hours (time sheet) to the umbrella company.
  • The umbrella company bills the BBC and then deducts tax and National Insurance, keeps their middle man fee and gives you the remaining amount.
  • You take home in the region of 60-65% of the contract value.

This is not a tax efficient system.

So why do some freelance contractors use umbrella companies?

If you are planning on contracting for less than 3 or 4 months then it makes little sense forming a limited company and contracting through it.

If however you are planning on contracting for more than 4 months it makes little sense to use an umbrella company.

For a personal review of your circumstances please contact us.

Disclaimer:

This information is for general information only. We take no responsibility for any action taken or refrained from in consequence of its contents. Always seek our professional advice specific to your circumstances before acting.