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What is an Umbrella Company?

What Is an Umbrella Company and How Does It Work?

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An umbrella company is essentially a limited company operated by a third party. By choosing to run your contract through this operating structure, you will become an employee of the umbrella company.

The umbrella company will typically sign a contract with your recruitment agency or end client, allowing you to be paid on a PAYE basis. By working through an umbrella company, your national insurance contributions and income tax will be taken care of, meaning that you can focus on the task ahead.

An umbrella company is also referred to as a 'payroll' company as it provides a payroll service for contractors and freelancers working on shorter-term contracts. If you’re working on a longer-term contract, working through a limited company may be more tax efficient for you.

To estimate what you could be taking home as a limited company contractor, try out our handy contractor calculator.

Use our Limited Vs Umbrella guide to determine which operating structure is more suited to you.

We’ll even compare your take-home pay through both operating structures to help illustrate the most financially efficient way of operating based on your daily rate.

A take-home pay calculation helps determine how much money you will be taking home once the relevant tax has been deducted. This is a key factor which can help determine which operating structure to pick. Other factors such as IR35 status should also be taken into consideration when weighing up which operating structure to use.

For a more detailed breakdown on what you could be earning via an umbrella company, get in touch with our New Business team on info@gorillaaccounting.com and they can provide a detailed breakdown.

Other factors such as IR35 status should also be taken into consideration when weighing up which operating structure to use.

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How does an Umbrella Company work?

Once you join an umbrella company, the process will typically follow these steps:

  1. After securing a contracting role, your appointed umbrella company will sign a contract with your recruitment agency/end client, on your behalf as your ‘employer’.
  2. You will sign a contract with the umbrella company, confirming your employment with them.
  3. A timesheet will be completed, providing an account of your billable working hours, and then signed off by your manager. This will then be submitted to your umbrella and recruitment agency.
  4. The umbrella company will get in touch with your recruitment agency, who will then bill the end client.
  5. Once payment reaches the umbrella company, they will begin preparing payroll.
  6. You will then be paid a salary once the following deductions have been taken– national insurance, income tax, umbrella fee, and pension contributions if you have opted in.

It’s worth noting that any HMRC compliant umbrella company will restrict what expenses can be claimed back.

This process is typical; however other agencies may have an alternative way of working. To understand our process in more detail, call a member of our New Business team on 0330 024 0406

Is an Umbrella Company your best option?

When deciding on an operating structure such as an Umbrella company, it’s worth keeping in mind the personal advantages, as well as the financial benefits. If you’re looking to work as a contractor or freelancer, but without the maintenance and directorial duties of a limited company, working through an Umbrella may be right for you. This structure is typically more financially efficient for shorter-term contracts, but few exceptions may apply.

An umbrella company reduces the admin because as your employer, tax deductions will be made before you are paid, and invoices will replace timesheets. The financial responsibility will be passed on to your umbrella company whilst you remain employed by them.

If you are caught by IR35, this makes no difference if you choose to operate through an umbrella company as you will already be required to pay NIC and income tax through an umbrella company.

Reduces Administrative and Financial work – All the relevant taxes will be deducted and sent to HMRC, saving you the hassle and responsibility. If making complex calculations isn’t your forte, well that’s what Gorilla Payroll is here for.

Employment Protections – As an employee of an umbrella company, you will be eligible for statutory employment rights such as, statutory sick pay, holiday pay, maternity pay, paternity pay and employers’ insurance.

Swift Set-up and Exit – Compared to a limited company, an umbrella company will get you on-board instantly, and it’s typically just as easy to exit.

On the other hand, if you think going limited is what you’re looking for, Gorilla Accounting can offer an all-inclusive package which will fulfil all your essential financial needs.

As the director of a limited company, you will be responsible for the everyday running of your company. This operating structure can be quite profitable as you will be able to take a combination of salary and dividends.

Working through a limited company will allow you to have more control over your financial affairs as you will be responsible for ensuring all the financial paperwork is submitted, which is where your accountant at Gorilla Accounting can help. If you’re interested in limited company contracting, get in touch with our new business team by calling 0330 024 0406 or email info@gorillaaccounting.com.

What is Gorilla Payroll?

Gorilla Payroll is our umbrella company which strives to ease the contracting process by taking care of your taxes, administrative work and by providing one easy port of contact.

We’ll sign an agreement with your recruitment agency, and once you sign up with Gorilla Payroll, we’ll become your employers. Gorilla is an established accountancy firm so we can guarantee that you’ll be in trusted hands.

Our umbrella solution is compliant with HMRC guidelines, so rest assured – you’ll always receive professional tax advice with our compliant umbrella, and there are no start-up fees, exit fees or any unexpected costs.

Our intention is a simple one, to fulfil your accountancy needs and to tailor our services to your working life, whether this may be through an umbrella company or limited.

We’re here to answer your questions so get in touch by calling us on 0330 024 0406 or email info@gorillaaccounting.com.

Ready to sign up? Our quick application process will get you up to speed in minutes. Sign up here.

Still unsure?

If you’re unsure of any of this information, your Gorilla accountant would be on hand to assist you with any queries that you may have.

Increased accountancy fees – With the increased administrative responsibilities that limited companies have, this means that you may find yourself paying more money in accountancy fees. With this in mind, at Gorilla Accounting you would pay one set fee which includes no extra charges or hidden fees.

If you would like more information on choosing the right option for you, please get in touch as soon as possible by calling Gorilla on 0330 024 0406.



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