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The number of umbrella companies in the UK has grown substantially in the last decade.

Acting as an employer to contractors, working through an umbrella company offers a hassle-free way for individuals to transition into a contracting career, without the responsibility of all of the accompanying paperwork.

Umbrella companies provide a good solution if you are working under a short-term contract, having been caught inside IR35 rules. Working through an umbrella company enables you to maintain some of the benefits related to traditional employment, such as sick, maternity and even holiday pay.

There are a number of pros and cons regarding working through an umbrella provider which should be considered. The main advantages of contracting through an umbrella company are:

  • A more hassle-free method of contracting without the potential high amount of paperwork needed in comparison to working through a limited company
  • A compliant umbrella company manages most of the administration, invoicing, national insurance, expenses and payroll processing
  • Payments will be handled accurately and on time
  • Umbrella companies can provide support and advice
  • Employment through an umbrella company also offers a low-risk strategy to try things before registering as a limited company

The only major disadvantage of employment via an umbrella agency is the minimised tax benefits available compared to those associated with setting up a limited company. Understandably, the umbrella agency will deduct charges from your salary to cover fees for their services. Related to this, you do not have the same level of control over financial affairs as a limited company contractor might.

However, if you would rather avoid spending time completing intricate paperwork which needs to be up to a legal standard, then umbrella companies are advantageous. Furthermore, they omit the necessity for direct correspondence with government agencies (such as HMRC or Companies House) which can be considered time consuming and stressful. This is particularly relevant to short-term contracting.

Of course, with growing numbers of umbrella agencies companies in in the UK, it is increasingly difficult to select the umbrella company that will work best for you. To assist with making the right decision, we have compiled a list of helpful tips for you to identify the best umbrella agency:

  1. Look for an established umbrella company
  2. Ensure that they are compliant
  3. Avoid companies that have minimum term commitments with penalties for breaking contract early
  4. Confirm that they operate under HM Revenue and Customs regulations
  5. Be aware of umbrella companies with complex fee structures that link to your hourly rates, as these can often be more expensive. Umbrella companies with clear advertising and fixed fee structures are considered superior
  6. Finally, access to direct communication with a dedicated account manager based in the umbrella agency is worth considering. Some companies offer a fully automated and online system, which may make sourcing specific advice difficult

Ultimately, you need to base the decision regarding whether to join an umbrella company based on your own circumstances and preferences in work style. Umbrella companies offer an advantageous facility to avoid the responsibility of time consuming paperwork, enabling you to concentrate on more pressing matters. Umbrella companies are also particularly useful for those just entering contracting and are unsure of business accountancy or do not have the time to uphold accurate records.

If you would like more information about our contractor umbrella services, get in touch with our New Business Team by calling 0330 024 0406 or email