If you’ve never considered becoming a contractor, I strongly suggest you look into the option, as unlike being employed by a company, it gives you complete control over when, where and how you work as well as having a large number of other benefits.
Since the economic downturn, the number of people choosing to become contractors has increased by 10 per cent, according to figures released by the Office for National Statistics. This shows how popular the option is becoming and while permanent salaried roles may well be hard to come by, there is certainly no shortage of work out there.
But there’s got to be downsides?
As a contractor, you’re essentially self-employed. However, alongside the freedom comes a set of extra responsibilities. For example, you will be required to complete all of your own paperwork relating to taxes and other administrative tasks. This may be something you had absolutely no experience with and it can be extremely daunting for people wanting to experience the world of contracting.
However, it doesn’t have to be like that. Companies such as PayStream offer umbrella company services that take away all the hassle and give you the peace of mind of knowing that everything (including any admin) is being sorted out on your behalf, leaving you to work safe in the knowledge you will not be falling foul of any regulations laid out by HM Revenue and Customs (HMRC).
Why do I need an umbrella company?
As well as sorting out all the dreadful paperwork, umbrella companies act as your employer, making tax and national insurance deductions on your behalf, as well as allowing you further to claim back tax-deductible expenses for travel, meals and accommodation if applicable.
One of the main benefits I discovered is that this option continues to provide you with access to state benefits such as maternity pay and a pension because you remain employed in the eyes of HMRC.
Another major consideration is the fact that recruitment agencies generally won’t issue contracts to individuals and prefer only to deal with contractors who are either working through their own limited company or are utilising the services of an umbrella company. This can be a significant inconvenience when you’re looking for work and leaves you faced with the option of setting yourself up as a director of your own limited company (and dealing with all the admin associated with this move) or using an umbrella company, which means you are seen as an employee.
How do I choose an umbrella company?
All umbrella companies make the same pay-as-you-earn (PAYE) and National Insurance deductions, and the only thing that affects price here is the margin they take.
In my experience, however, there are several other factors that should be considered if you are looking into choosing between firms offering these services.
It is highly likely that a potential recruitment agency will make a recommendation regarding this decision, but it is important to make sure you don’t just accept this as the best option and fail to explore all avenues open to you.
HMRC regulations are not always static and can evolve, making it essential that the umbrella company you’re looking to use remains up to speed with the new guidelines. As far as I’m concerned, this should not even be a consideration, as it is the least you’d expect from the firm, but you’ll find some contractors have been caught out in this manner.
Another key thing to consider is the amount of insurance cover included in the policy. I cannot stress enough how vital it is to ensure you have suitable insurance. Regardless of whether you use an umbrella company or set yourself up as a limited company, you need to be certain you are covered in the event of a major accident to yourself, property, a fellow worker or member of the public.
Searching for adequate cover and comparing prices can be a time-consuming task and it is often difficult to understand exactly what is and what is not covered. Fortunately, the best umbrella companies will include insurance policies, with most offering £10 million employers liability, £5 million public liability, £5 million professional indemnity and personal accident cover.