Pros and cons of working with an umbrella company

If you’re a contractor and want to make your life easier, you may be considering working with an umbrella contracting company. In this article, we’ve rounded up some of the biggest pros and cons of doing so to help you make the right decision for your circumstances…

PROS of working with an umbrella company

• Hassle-free: The biggest benefit is that you can begin contracting in a matter of hours, as your umbrella company will become your employer in a matter of minutes.

• No paperwork: Unlike working for yourself and having to do your own accounts, an umbrella company will manage your invoicing, chasing payments, processing your payroll, and administrative duties, saving you lots of time and unnecessary stress.

• Short-term benefits: Umbrella companies are a great idea if you’re working on a short-term project with a client, as you’re not tied into any long-term contracts.

• No accountant: Because umbrella companies become your employer, you don’t have to worry about filing accounts or dealing with HMRC or Companies House.

• Try before you buy: If you’re new to contracting, umbrella companies mean that you can start without needing to form your own company or hire an accountant. If it doesn’t work out, you can stop working with your client and your umbrella firm.

CONS of working with an umbrella company

• Not as tax-efficient: Umbrella companies cannot offer you the same level of personal service as an accountant, and that may mean you’re not operating in the most tax-efficient manner. You may be better off incorporating a limited company. 
• No tax breaks: On the same subject, it’s important to remember that limited company directors may be able to benefit from a number of tax breaks. When you work with an umbrella company, those aren’t available as you’re officially an employee. Most agree, however, that the freedom offered by not having to worry about administration and paperwork outweighs the potential tax savings.

• They charge: Umbrella companies charge a weekly, monthly or per-timesheet fee for their services. If you were used to filing your own accounts, this is an added expense to consider, but think of the opportunity cost of doing your own paperwork.

There you have it – just some of the pros and cons of working with an umbrella firm. We recommend that you weigh up your options, but also consider that umbrella companies do not tie you into long-term contracts, so the best way to learn is to try out a company and their services and see if they work for you. You have very little to lose and perhaps a lot to gain!