If you are a contractor, your first thought may be to set up a limited company so that you can manage your business affairs. However, there are numerous situations where it makes sense to set yourself up with an umbrella company instead. If you understand the benefits of working for an umbrella and then make an effort to synchronise your business goals with the applicable benefits, you will be in a better position to discern which business model is appropriate for you.
Here are a few things that you should contemplate when trying to decide whether an umbrella company is the right choice for your business needs.
Think about why you are choosing a contracting career. Is it to enjoy better work-life balance? Do you want to get the most out of your skills and expertise? Do you look forward to being independent and not being answerable to anyone?
Do you have sufficient knowledge about finance and bookkeeping to handle your own finances?
Figure out what inspires you to embark on an independent contracting career and what you would like to achieve. It could be something like becoming the CEO of a company or being attracted by the varied working environments you will be exposed to.
Once you have determined honest answers to these questions, you will be able to look more objectively at the benefits of working with an umbrella company.
There are numerous advantages to being employed by an umbrella company. First of all, you will not have to manage your taxes, National Insurance or payroll. This can be challenging if you are new to your contracting career and are not literate in financial affairs. With this out of the way, you can focus on growing your contracting business.
Secondly, you won’t require as much starting capital when working with an umbrella company compared to establishing a limited company. This frees up funds to invest in expanding the business.
Furthermore, an umbrella company gives you the freedom to outsource administration. This way, you can focus on day-to-day work rather than spending time engaged in tedious paperwork. Not only is this monotonous and time-consuming, it does not generate revenue for your business.
Your status as a contractor will have a major influence on your decision on whether or not to work with an umbrella company. If you are going to fall within the remit of IR35, you might not benefit financially with a limited company setup as you will be liable for National Insurance and PAYE. Under such circumstances, it is prudent to opt for an umbrella company.
It is also important to note that signing up with an umbrella company is not a binding decision. If you feel that a limited company business model is more suitable at any time, you can change the status of your company when appropriate.
In conclusion, it can be categorically stated that the main benefit of an umbrella company is that you can take a different path to becoming a contractor. An umbrella company allows you to go ahead with your plans and optimises your time and responsibilities so that you can focus on your business. It is best to educate yourself about the different business models that you can utilise and then select one that best suits your contracting work to maximise your chances of commercial success.