When do you use an umbrella company?

By definition, an umbrella company is a company that contractors can opt to work through as an alternative to setting up their own limited company business. It will act as your employer and the intermediary between the contractor (you) and your recruitment agency or end client. The umbrella company handles all the administration and payroll duties and offers some protection and some support. In other words, you don’t have to deal with any of the administrative tasks or responsibilities that are included when you are running a limited company. 

Parasol Group is one of the market-leading umbrella companies in the United Kingdom, offering an award-winning umbrella service along with companies like, RM Business Associates that provide fully compliant Umbrella/Pay As You Earn (PAYE) solutions. PAYE umbrella company is a standard UK limited company, that is operated by a third party supplier that acts as an ‘employer’ on behalf of its contractor employees. Generally, the umbrella company and recruitment agency (or end client) would sign an agreement on behalf of the contractor who will be carrying out the task.

Opting for an umbrella company does come with a cost. So before joining this arrangement, ask yourself if it is worth it, if the benefits outweigh the risks. Is it good for you to use an umbrella company? Weigh the cons and pros, and determine if the benefits are worth the cost. Many recruitment agencies provide PAYE status to their contractors, managing all applicable HMRC taxes and deductions before sending you your paycheck. Where they ensure that your taxes are all being paid accordingly, and minimize the administrative concern of self-assessment, and managing personal finances, they also take a charge for that service, and is it a charge that you can afford?

If you are setting up a short term contracting, then putting up a limited company might not be worthwhile as demands of a limited company would unlikely fail to meet if you are starting off in contracting.