What Are Umbrella Companies?

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Umbrella companies are set up by contractors as a simple alternative way of running an Ltd company. Effectively umbrella companies act as a substitute employer, who pays the contractor via the PAYE system. However, contractors can still claim for expenses as they would if they were self employed.

Why Umbrella Companies Are On the Increase

In the UK there has been a recent increase in the formation of umbrella companies. It all came about when the government introduced tax and employment legislation known as the IR35.

Prior to this legislation being introduced people who were effectively working permanently in companies were claiming that they were self employed contractors. This allowed them to pay a lower rate of tax and to claim back many day to day expenses creating a significant drop in tax revenue. In addition, employers were choosing to employ people in this way. This also generated less income for the taxman and meant that good, secure permanent jobs that offered full employment rights and benefits were not available for the general public.

Unfortunately, IR35 legislation was drafted in such a way that it caught many genuine contractors between the devil and deep blue sea. This lead to many genuine contractors having to pay PAYE tax because it looked like their contracts were permanent rather than temporary contracts.

How Umbrella Companies Can Help Genuine Contractors

If you are a genuine contractor who is working on a short term contracts for various companies you are OK to continue as you are. However, if the bulk of your work comes from one or two companies and is more or less stable work you may benefit from the help of an umbrella companies.

The biggest benefit umbrella companies offer contractors is advice. When you draw up a new contract they can help to ensure that the terms of each contact allow you to comply with IR35 regulations. This can save you a lot of money in tax. In addition an umbrella company will take care of all of your tax leaving you free from the hassle of dealing with the taxman.

Plan It Solutions have over 15,000 contractors using their umbrella companiesservice. They offer a transparent and fair service at a great price.