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Umbrella companies exist to give contractors the opportunity of choosing contracting as a career option. The contractor can work for different clients across their working career but keep the same employer, building up employment tenure. Something many lenders look for when agreeing mortgages, loans, etc.
One of the primary responsibilities of the Umbrella company is processing the contractor's payments. This involves receiving the funds from the recruitment agency or client, calculating the correct deductions for taxes, and managing other statutory contributions, such as National Insurance and pension contributions. The Umbrella company then pays the contractor their net income, which is the amount left after these deductions have been made.
<aside> <img src="/icons/info-alternate_blue.svg" alt="/icons/info-alternate_blue.svg" width="40px" /> In addition to handling payroll, Umbrella companies often provide other services that benefit contractors. These may include handling expenses claims, providing access to professional indemnity insurance, and offering HR support or legal advice when needed. These additional services can help contractors focus on their work without worrying about the administrative tasks that come with being self-employed.
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In return for their payroll and additional services, the Umbrella company charges the contractor a small fee. While using an Umbrella company may come with a cost, many contractors find that the convenience, time savings, and reduced administrative burden more than justify the expense. Moreover, by ensuring compliance with tax regulations and providing access to valuable additional services, Umbrella companies can help contractors minimise potential risks and focus on delivering their best work in their chosen field.
Umbrella is PAYE (Pay As You Earn). The only difference is that the worker is paid an assignment rate rather than a PAYE rate.
Both the above are cost-neutral for the client. When someone is paid via Umbrella they comply with the IR35 Off-Payroll Working changes.
When a worker is paid via an Umbrella Company, they are paid an assignment rate of pay. The umbrella deducts the employment costs and processes the remainder PAYE.