Why must I use an Umbrella Company?

24 August 2012

The reason most contractors are recommended to join an umbrella company scheme is that current HMRC tax legislation dictates that contractors have to be paid with PAYE tax and National insurance contributions (NICs) deducted i.e. it is not possible to be paid cash in hand and account for your own tax.

Normally an agency gives you 3 options:

  • To be paid by their PAYE scheme;
  • To be paid through an Umbrella Company; or
  • To be paid through your own limited company.

The reason an agency may recommend you join an umbrella company rather than be paid by them is because firstly it can help reduce their administration but also because it is normally possible for you to earn slightly more by being reimbursed for some expenses tax free.

It can also be beneficial to you if you get new contracting roles as you will still be able to continue being employed by the umbrella company.

By being an employee of the umbrella company you will also benefit from statutory benefits such as maternity pay, sick pay  etc.

If you are looking for an Umbrella Company to join please call PayMatters Umbrella Company on 0800 121 6513.