The main advantages to using umbrella services are as follows:
Removes the hassles of running your own limited company
There is no need for you to be involved in VAT returns, payroll matters, taxation and company accounts, etc.
Short term contractors do not have to form a company and then arrange for it to be dissolved which can be a costly process.
The most common type of umbrella service is the salary only scheme or PAYE umbrella. This umbrella service does not work outside of the scope of IR35 and all income is paid by salary only. This type of service also allows for reasonable expenses incurred.
There are other types of umbrella services you can use and these offer alternative solutions involving foreign currency loans, offshore arrangements, etc. Providers promote these services on the basis their payment methods have an advantage over UK based/standard umbrella company schemes. You must ensure that you are at ease with the system being offered and you must check the legality of any services offered and whether they are appropriate for you and your circumstances. It can be that these schemes present more of a risk as legislation was introduces in the 2004 Budget making it a legal requirement for ‘tax avoidance’ schemes to be registered with the HMRC.
The most common complaint hat contractors have about the umbrella services is the speed of processing and the quality of services being less than what they had expected. There are some umbrella service providers who now offer service guarantees or your money back.
It is in your best interests to clarify certain things with your provider in advance.
How quickly will an invoice be sent to the agent once your timesheet has been received?
How quickly will you be paid once they have received the money from the agency for your work?
Many agencies nowadays will recommend an umbrella company and these are usually judged on the quality of the service provided to both the contractor and the agency. Remember the agency will be looking for a hassle free option. Some agencies will have a preferred supplier list and some will have a commercial arrangement and these will not necessarily be based on the quality of the service provided to the contractor. It is always a good idea in this circumstance to ask the agency why they are recommending a particular umbrella company.
The fees charged for umbrella services can vary considerably, but you should expect to pay £25 to £30 per week for a service of high quality. Some umbrella companies charge on a percentage basis but this can be negotiated, especially if you are on a high rate of pay.
Beware, as anybody can set themselves up as an umbrella company without the relevant experience or qualifications. It is imperative that you know who you are working with as you will be trusting them to handle your hard earned money. Quality umbrella companies are run by qualified accountants who are in a position to offer you personal as well as professional guarantees.