Should You Be Using an Umbrella?

pUmbrella companies are companies that serve as employers to freelance contractors working under fixed term contracts. In essence an umbrella company works as a waynbsp; for managing all of the admin traditionally associated with contracting, leaving freelance contractors to concentrate on the contracts themselves. An umbrella company will take on nbsp;invoicing, collecting payments from clients and / or agencies , organizing national insurance contributions and handlingnbsp; tax as well as passing on money to the contractors bank account. The self-employed contractorsbr /nbsp; will go about their contracts as usual, but at the end of the day / week / month will hand innbsp; expenses forms and timesheets to their umbrella company. Thereafter the umbrella company will handle the rest./p
p There is, naturally,nbsp; a fee for this service and this can vary depending on the companynbsp; . But for most contractors this fee is a price worth paying as the umbrella companynbsp; takes some of the hassle, and often some of the tax, out of contracting. Indeed umbrella companies have become more and more popular in the last few years since the UK Treasury introduced the IR35 legislation (designed to determine employment status and ability to make use of company tax reliefs) and the legislation concerned withnbsp; Managed Service Companies./p
pPreviously contractors had usednbsp; composite company structures known as Managed Service Companies (MSCs) in which nbsp;freelance contractors were shareholders of the company but did not get involved innbsp; the company management. The Treasury introduced legislation in 2007 that prevented MSCs from being used to avoid income tax and National Insurance and since then, umbrella companies, which are not covered by the MSC legislation, have become ever morenbsp; popular amongst nbsp;freelance contractors ./p
pIn the last nbsp;numbernbsp; of years however, contractors have sought out more effectivenbsp; solutions such as Employee Benefit Trusts. Annbsp;a rel=nofollow href=http://www.bedouingroup.com/ target=_newEmployee Benefit Trust/anbsp;offers all the same advantages as an umbrella company (no admin, invoicing or company dutiesnbsp; ) with none of the problems – EBTs have no need fornbsp; expenses forms or timesheets, and they also providenbsp; added security as contractors are given full employment status, statutory rights and benefits (whether contracting in the UK or overseas ), as well as professional indemnity cover. Finally and most importantly , the Employee Benefit Trust guarantees a far higher gross to net ratio than any umbrella company offersnbsp; . Umbrella companies usuallynbsp; offer up to 65% gross to net whereas EBTs offer a return on contract of up to 85%./p