In the UK, an umbrella company acts as employer to independent contractors who work under temporary contract, usually through a specialist employment agency.
Recruitment agencies will only issue contracts to a limited company. Since the introduction of the Managed Service Company legislation in the 2007 budget, the only way an independent contractor can comply with this requirement is to set up his or her own personal limited company or use an umbrella company.
An umbrella company issues invoices to the recruitment agency (or client) and, when payment of the invoice is made, will typically pay the contractor through PAYE.
Umbrella companies have become more prevalent since the British government introduced so-called "IR35" legislation that makes it less beneficial to start your own company and increasingly attractive to join an umbrella company.
IR35 is a term used to denote United Kingdom tax legislation designed to tax "disguised employment" at a rate similar to employment. In this context, "disguised employees" means workers who receive payments from a client via an intermediary and whose relationship with their client is such that had they been paid directly they would be employees of the client. Before IR35 was introduced workers who owned their own companies were allowed to receive payments from clients direct to the company and to use the company revenue as would any small company.
With doing some research into umbrella companies i have found out that most of them offer the same services.
* Turn timesheets from contractors into invoices and submit to agencies * Process funds from agencies and send to your bank account * Process your expenses ensuring you maximise your income and tax efficiency.
Whilst many of the umbrella companies advertise similar offerings, much of the detail should be checked by the user.
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