Freelancing in the UK can be a tremendously rewarding career path to follow as evidenced by the tens of thousands of contracting workers oﬀering their services in every sector of the UK economy. In doing their work, a freelancer’s options would be to operate either through their own limited company or to work through an umbrella company.
So what exactly is an Umbrella company?
An umbrella company is set up in exactly the same way as any other limited company. The key diﬀerence is that the umbrella company will generally be owned by an Accounting Business and will employ many freelancers through this one company. Most umbrella companies will have thousands of freelancers working through the business.
Why would anybody use an umbrella company?
Umbrella companies have traditionally been used by freelancers who are either on very low rates or on short term contracts. In these instances it is generally not worth the eﬀort to set up a limited company and so the freelancer would use an umbrella company. Lately, with the implementation of the new ‘Public Sector’ rules, freelancers will now be open to using an umbrella company irrespective of their rate of pay or length of contract.
How does an Umbrella company work?
The key diﬀerence between using an umbrella company as opposed to a limited company is that the freelancer becomes an employee of the umbrella company. So it is the umbrella company who signs the agreement with your agency and in turn you sign an employment contract for the length of your contract with the umbrella company.
What this means is that each week or month, when the freelancer completes a timesheet, Crumb will need to get a copy of that so that we can invoice the freelancers agency (unless they operate a self-billing system which most do). The agency pays the umbrella company and then Crumb pays the freelancer net of any taxes and national insurances.
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