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Contractors: What Are the Advantages of Using an Umbrella Company?

Being a contractor is often hard work. You have to find clients, manage projects, and then deal with all the legal issues, such as using the correct means of documenting tax and National Insurance. It can be daunting, particularly if you have no experience in running a business or managing your own accounts.

One solution to these problems is to use the services of an umbrella company, rather than registering your work as a business (regardless of structure: sole trader, limited liability company, partnership, etc.). They effectively act as the business, and you become their client.

Clearly, the biggest disadvantage in this is that you will not retain all of your profits. Instead, you will need to pay the contractor umbrella for their work. However, unless you chose to undertake the work yourself – which is a lot of hard work – you would still need to pay an accountant, bookkeeper, and credit controller.

On top of this, if you choose to pay accountants, etc. you are liable for mistakes that they make. For example, if your accountant under calculates your PAYE contributions, you are liable to make these repayments. Unfortunately, you might have spent the money elsewhere, and this therefore leads to problems with cash flow, and in the worst circumstances, to having to declare bankruptcy. With an umbrella company, you are liable, but not directly so. It is unlikely to put you out of business.

So now, you are surely starting to appreciate the value in using an umbrella company to carry out your formal business requirements. Below, you will find a list of other key advantages:

•    Less legal liability and responsibility than with a limited company.

•    Less time spent on administrations tasks, such as tax and PAYE, leaving more time for spending on the work-side of your business, i.e. where the profit is.

•    No need to take the time to set up a company when you land a big contract – you can sign up straightway to an umbrella company.

•    No worries about being caught out by certain types of legislation, such as changes in the way we pay Corporation Tax.

•    Ability to take on shorter contracts, without the risks of owning a limited business for the entire year. Formal accounts run from year to year, so a contract of only a few months can be a huge pain.

•    The ability to work flexibility between permanent employments. You do not have to take the time to start a business, with everything that entails.

•    The ability to run a business, even when you may be subject to certain restrictions. For example, certain types of visa preclude you from setting up a limited company.

As you can now appreciate, you can find many advantages in using contractor Umbrella Company. The only downside really is the cost. It’s not that they’re particularly expensive. It’s simply that the represent a cost that you would not have were you to carry out the work yourself.

Would you like to learn more about umbrella companies? If so, please visit http://www.aogresources.com/