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Umbrella company. What is the point?

Discussion in 'Employment & Jobs' started by datarunner, Jan 7, 2009.

  1. datarunner

    datarunner Byte Poster

    hi all

    this may be a dumb question to some people but im hopeless with accounts, tax, NI etc. So apart from the insurance benefits, what is the point of contracting under an umbrella co?

    The reason i ask is i was set a daily rate by my agency but by the time the umbrella process it, i get a lot less than expected. This is even more ironic when the umbrella's slogan is "maximise your earning".

    so can anyone explain this in plain English?

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  2. Boycie
    Honorary Member

    Boycie Senior Beer Tester

    Hi there,

    I believe the answer is in your statement: "im hopeless with accounts, tax, NI etc"

    My understanding of the "umbrella" is that they take a lot of the chores that a contractor (either self employeed or limited) may incur.

    I am sure someone with a more detailed explanation will answer soon!

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  3. UKDarkstar
    Honorary Member

    UKDarkstar Terabyte Poster

    To help avoid fraud such as workers claiming to be self employed when in fact they are not registered as such, many contract jobs can only be obtained if invoices are sent via a Limited Company. There are also rules about being self employed and only working for a very small number of companies (the IR will treat you as an employee).

    Effectively then, you become an employee of that company (tho' in treatment more like a director).

    The umbrella company therefore processes the invoicing of the payment and then deals with your tax and NI etc on your behalf (and takes a management fee for itself) thus keeping everything above board.

    I did manage to get a contract job some years back while I was self employed but only as I could prove that I had a business that had been trading for some years.

    That's my understanding anyway.
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  4. derkit

    derkit Gigabyte Poster

    While Darkstar is partially right about what the umbrella company does, the "keeping above board" is subjective as you can become a Ltd Co and use certain tax breaks legally to be able to increase your take home money. Umbrellas are good for keeping away from IR35 issues - check out Contractor UK for more info and understanding though.

    Again, just my thoughts and from what I've read - never had to do it myself.
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