Why use an umbrella company?

Why use an umbrella company?

Contracting is a way of life for many. The extra flexibility it gives in terms of work can help freelancers develop a better balance between their professional and family lives.

However, some find the administrative side of contracting difficult hard to manage, especially on a regular basis. It is here that an umbrella company’s services can come in very handy.


By choosing to work through an umbrella company you will be employed under what is called an overarching Contract of Employment. The main benefit from this is that it is the firm who is responsible for invoicing your client and chasing up your pay on a regular basis.

This significantly reduces the amount of time you have to spend on this part of your finances. It also means that you will not have employ an accountant or go through the bureaucracy of setting up your own limited company.

Keeping tax up to date

Umbrella companies pay through a pay as you earn (PAYE) system, meaning that tax and national insurance contributions must be taken out of your salary. Your firm will ensure that this has been done properly and efficiently, leaving you much more time to concentrate on the quality of your work.

This particular service can help give contractors piece of mind, as they know that the financial aspect of their work is taken care of within the regulations that HM Revenue & Customs (HMRC) has set out.


If you believe that the majority of your contracts will lie inside of IR35 legislation, then it is wise to consider the services of an umbrella company. You will pay tax and National Insurance Contributions (NIC) like you would if employed by a company, but it also means you won’t have to worry about getting caught out by HMRC.

Flexibility for newcomers

Umbrella companies are particularly beneficial to first time contractors who are new to this way of working. It allows you to fully ‘test the water’ so that you can ensure contracting is the best option for you.

Regardless of the length of your contract, working through an umbrella company is a viable option.

Less paper work

As mentioned above, the best umbrella companies take care of the vast majority of administrative tasks, leaving the contractor to develop a better work/life balance. This also means that there is very little paperwork to fill out on your part over the course of your dealings with such a firm.

Of course, there are still important documents that you do have to fill out on a fairly regular basis, but this is nowhere near the amount you would have to deal with if you operated through a limited company.

The main two are your timesheets and expenses claims. Both are equally important for different reasons and they should be filled out properly and regularly. However, even filling these out is likely to be relatively easy as most firms will have a system in place to eliminate as much of the hassle as possible.

Overall, umbrella companies try to make it easier for contractors to operate as efficiently as possible.