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AboutSometimes, contracting as the employee of an umbrella company can work better than setting up your own limited company. Perhaps you have concerns about a contract being deemed inside IR35 after the April 2021 reforms, or one of your clients has already announced that they will be placing your contract inside. Nixon Williams, through our sister organisation Parasol, provide an umbrella service for contractors who do not wish to set up their own limited company.
What is an umbrella company?
Put simply, by opting to be paid through an umbrella company on your assignments you effectively become an employee of the umbrella company. You will submit time sheets outlining the number of hours worked and any expenses incurred.
The umbrella company will invoice the agency on your behalf and will provide a payroll service, process any admin and pay you your salary.
You will receive a payslip and your wages will go directly into your bank account minus any PAYE tax, National Insurance contributions and a small margin to cover the administration costs.
Go UmbrellaWhat are the benefits of using an Umbrella company?
There are many benefits of contracting through an umbrella company. The most exciting one for most people is the flexibility and freedom of the contracting lifestyle but without the headache of the paperwork.
All of your administration is taken care of, with the exception of you completing your time sheet. The umbrella company calculates your tax and national insurance contributions and will make payments to HMRC. Additionally, they can advise you on the expenses you may claim to help maximise your income while still being compliant with HMRC’s rules.
Another benefit is that you get to keep many of the employment rights you had when working in a permanent role such as sick pay, holiday pay and maternity pay.
Stay out of the rain with Nixon Williams Umbrella.
Join our UmbrellaWhat is IR35 legislation?
A hot topic in contracting, it’s possibly the most important piece of legislation with the biggest impact on your contracting career. That sentence makes it sound quite menacing, however, its purpose is to decide whether or not the terms of your engagement make you an employee of the company you’re contracting for. It was introduced in April 2000 and has been applicable to all contractor engagements since then.
What changes are coming?
In April 2017 HMRC applied a change to the legislation which shifted the responsibility, and liability, of determining the IR35 status of a contract from the contractor to the end hirer (the organisation that the contractor is completing work for). It was not a well received change, and was mostly opposed by contractors. From April 2021 these same changes are being applied to the private sector and has caused a knee-jerk reaction from a number of large organisations who are now applying blanket status assessments of “inside IR35”.
What happens to my limited company if I work as an umbrella employee?
If your assignment is deemed inside IR35 it may not be tax efficient for you to contract through a limited company so umbrella could be the route for you. But what happens to your limited company? Below are some of your options:
- Dissolution (‘Striking off’) – This is one way to close the company and have it removed from the official register at Companies House
- Members’ Voluntary Liquidation (MVL) – If there is over £25,000 in the business this is the tax efficient way to close it down.
- Dormancy – Your company is placed into a dormant state which means it stops trading but is not dissolved.
How to sign up to umbrella
If you’re new to contracting
Becoming an employee of an umbrella company is a relatively straight forward process and can be done on the day you get in touch. Our friendly advisors will guide you through everything you need to know and can answer any questions you might have.
If you’re currently contracting through a limited company
There’s an extra step involved here because as mentioned you will have to decide what to do with your limited company.
While each case will be different, if you’ve had confirmation that your assignment will be deemed inside IR35 following the April 2021 reforms, we generally recommend that you make your company dormant for a small fee, and then sign up with our umbrella company.
This gives you the most flexibility in the future, as you may still close it down, however you may find that your future contracts fall back outside of IR35 and with this option can start trading again with ease.
Get in touch today
There’s certainly a lot to consider when choosing an umbrella company so let’s have a chat about your options.
Fill in the form below or call us on the number above.