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This is exactly how an umbrella company and a limited company works

If you have wondered and not found a satisfactory answer, let us tell you what an umbrella company is all about. An umbrella company is the middle person between the contractor and the end client...

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This is exactly how an umbrella company and a limited company works

 

If you have wondered and not found a satisfactory answer, let us tell you...

Read More

When you are an employee of the umbrella company

 

As an employee of the umbrella company, the contractor will be liable to submit his timesheet as proof ...

Read More

For whom is this recommended?

 

This kind of contract for service with an umbrella company is recommended for those that have ...

Read More

This is exactly how an umbrella company
and a limited company works

Have you wondered how people manage to stay in employment when they do not even have a steady employer?

If you have wondered and not found a satisfactory answer, let us tell you what an umbrella company is all about. An umbrella company is the middle person between the contractor and the end client. The relationship of the umbrella company with the contractor is that of the employer and the employee.

Here is a step by step guide to the recruitment of the contactors done by the umbrella company and finally the client company.

Step one:

The contract between the recruitment agency and the umbrella company is signed. It is called the contract for service;

Step two:

The contractor is ten expected to sign a contract of service with the umbrella company;

Step three:

The contractor shall submit the timesheet and the expenses claimed sheet to the umbrella company. A timesheet is a record of the work done by the contractor in the contract with the client company and the expenses claimed is a record of all the expenses that are claimed to have been actually made and the receipt of which are also furnished along with the statement for the perusal of the umbrella company.

Step four:

Based on the time sheet provided by the contractor, the umbrella company raises an invoice on the client company and also gives a list of all the expenses that are legitimately claimed to be made by the contractor;

Step five:

The client company then pays the invoiced amount to the umbrella company;

Step six:

The umbrella company receives the amount on behalf of the contractor and deducts statutory taxes, national contributions and also its fees for the services rendered to the contractor.

Step seven:

At the end of the various deductions in the form of taxes, contributions and fees, the umbrella company sends the contractor a pay slip.  

If you are the contractor, there are chances that you can be at cross roads trying to decide whether you must remain an employee of the umbrella company or you must float your own limited company.

We give you an outline of both so that you are in a better position to appreciate the differences between the two:

When you are an employee of the umbrella company:

As an employee of the umbrella company, the contractor will be liable to submit his timesheet as proof of the amount of work done for the client company and the list of expenses that he claims he spent during the course of his employment from his pocket. The expenses could range from expenses relating to food, accommodation to travel.

When the umbrella company is in receipt of these two documents, it makes a note and raises an invoice on the client company who pays the amount to the umbrella company. Now, the umbrella company is entitled to deduct all the statutory taxation from the contractor’s salary. He must also subtract the national contributions and then also a marginal amount as fee as agreed for the service that is rendered them in maintaining his contract and managing his paperwork.

For whom is this recommended?

This kind of contract for service with an umbrella company is recommended for those that have an annual salary of less than twenty five thousand pounds. Also, such contractors are those that are only in the beginning stages of their careers and they must preferably pick up short term contracts say for example contracts ranging for work from 4 to 6 months maximum.

The contractor is expected to take roughly 65 percent of his income after the various aforementioned deductions which definitely are deemed to be decent in today’s times when unemployment and losing jobs to attrition is so rampant.

Now, about the limited company:

As a contractor who is also the director of your own set up, you have the onus of submitting your own taxation documents to the relevant authority that is HMRC. You will no longer have the luxury of taxes being deducted and the end sum in your hand to be taken away conveniently. However, it has been observed that when a contractor has his own set up then he can take home at the most 85 percent of his earning which is well worth the extra hard work.

However, we think the choice between joining an umbrella company and a setting up a limited company and becoming its director will rest upon the prerogatives that you have had the way you wish to manage your career.

Resources on the internet:

There are scores of case studies available on the internet by virtue of which you can decide what you can do is to read as much as possible and then decide for yourself what is most convenient for you. The more you read the better equipped you will be to handle your career and wield it in the right direction. Also check out the link http://www.umbrellacompany.net/accountancy/