What is an Umbrella Company?

If you're asking "What is an Umbrella Company?" you've come to the right place!

If you are new to contracting you may have heard about umbrella companies but want to learn more...

So, what exactly is an umbrella company?  An umbrella company is a company that acts as an employer to contractors who work under a fixed term contract assignment, usually through a Recruitment Agency (in the UK).  Recruitment Agencies issue a contract to a limited company as this way, the agency's liability is greatly reduced.  The umbrella company issues an invoice to the agency (or client) and when payment of the invoice is made, the umbrella company will usually pay the contractor through PAYE with the added benefit of offsetting some of the income through claiming expenses such as travel, meals and accommodation.

Umbrella companies have taken a more dominant role in the industry and certainly with the 'IR35' legislation causing so much controversy and damage to business, you can understand why.  The IR35 legislation, was put into force by the government back in April 2000, and it forms tests which are supposed to determine the employment status of an individual so that HMRC can determine which individuals are truly self-employed (and in business on their own account) and able to make use of small company tax reliefs.

There is much to think about and take into account when you are starting out and it can therefore be a daunting time.  I hope this information has helped particularly if you were asking the question "what is an umbrella company".  If you would like some further advice and/or guidance on what an umbrella company is or would like to discuss any of the points made above in more detail, please do not hesitate to contact us.  We offer our own umbrella company solution, Nasa Umbrella along with accounting packages for limited company contractors and much more.  We specialise in working with contractors and are always happy to help!