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Umbrella Company

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This is usually a single company with a large number of workers. The advantages of umbrella services may mean reduced paperwork and are an easy option if you only intend to contract for a short period.

Disadvantages of using an umbrella service will include reduced income compared to other methods, net income is often inflated due to abuse of 'HMRC approved expenses schemes' and 'dispensations', indeed, we are aware of one umbrella company that was forced into administration when HMRC discovered such abuse. Your money is also at risk from the umbrella company ceasing to trade (e.g. Sunday Solutions, Prosperity 4, Albany etc.) leaving their freelance contractors out of pocket. Lastly, there is an increased risk an HMRC investigation, especially if the umbrella company is found to be incorrectly treating expenses etc.

Note that any incorrectly paid expenses will be recovered from the employee and not the umbrella company.

The introduction of the Agency Workers Regulations (AWR) in October 2011 will have a major impact on how umbrella companies operate. It is highly likely that they will cease to exist in their current form. Umbrella companies are promoting various solutions such as the 'Full Employment Model', 'Swedish Derogation Model' and the 'Match Permanent Pay Model'. It is now clear that for any contracts in excess of 12 weeks, working through an umbrella or one of the many replacement schemes, will be even less rewarding.

Unless you only expect to work as a contractor for less than 12 weeks, umbrella schemes are not an efficient option.

Nixon Williams have never offered Umbrella Companies.