It is no secret that the number of people ditching salaried employment in favour of contracting is on the rise in the UK. It is, perhaps, something of a secret that the majority of these have opted to work through Umbrella Companies rather than limited companies or personal service companies.
The chief reason is that contracting through a good PAYE Umbrella Service is considerably simpler and more convenient than setting up a personal service company. A huge administrative burden is lifted from the shoulders of the fledgling contractor, chiefly because the umbrella service handles tax and national insurance contributions automatically.
Instead of keeping painstakingly updated accounts month in, month out, and then paying expensive annual fees to a specialist accountant to process them, PAYE Umbrella Employees simply submit a weekly or monthly timesheet, plus expense claims. The company does the rest, calculating tax and NI contributions and paying out the remainder to the contractor, minus a modest fee.
The umbrella option is ideal for contractors who simply want to get stuck into the work rather than diverting precious time and energy into accounting and administration. It is also perfect for people who are seeking some temporary work in between permanent jobs.
As contractors who work through Umbrella Companies are considered employees by HMRC, as they are effectively paid a salary by the company and have tax and national insurance deducted as they earn, they are not at risk of falling under IR35 rules, which were implemented to prevent disguised employment.
Perhaps the most onerous administrative task is to ensure that all expenses claimed have receipts to back them – HMRC will not like it if you are unable to produce these if challenged.