Umbrella Employment & What IR35 Means For You
Considering Umbrella Employment Due To IR35?
Contracting can be a complicated sphere to navigate. With options such as Umbrella, Limited Company, and Sole Trader, it can be difficult to know which avenue to choose and how you’ll be impacted by legislation such as IR35. But don’t worry, it’s not as complicated as it sounds. Umbrella working is a great option for contractors who want to continue working flexibly despite IR35, says James Harris, Head of Compliance at JSA Group.
A quick summary of IR35
IR35 refers to tax legislation that was introduced in 2000 to tackle tax avoidance by workers who were working under ‘disguised employment’ schemes. Disguised employment is defined as an individual who is supplying their personal services to their clients through an intermediary, such as their Limited Company, but who would be considered an employee if the intermediary wasn’t used.
On 6th April 2021, IR35 reforms were implemented by HMRC in the private sector. They have meant that end hirers in the private sector (unless they’re considered small by HMRC) are now responsible for determining the assignment status of their contractors and issuing a status determination statement.
If you receive an ‘outside’ SDS, you can continue to work as a Limited Company contractor and enjoy the same benefits of self-employment as before. However, if you receive an ‘inside’ SDS, you may need to consider other working options, such as Umbrella employment.
What is Umbrella Employment?
Umbrella contracting is a great way to enjoy the freedom and flexibility of contracting while still maintaining access to a wide range of employment rights, protections, and benefits. It is often the first step contractors take on their contracting journey when they’re not quite ready to start up their own Limited Company.
To contract this way, you become an employee of the Umbrella company who will supply your services to other companies (end clients or recruitment agencies). You can continue to enjoy the benefits of working flexibly for a variety of end clients, but you will be legally employed via your chosen Umbrella company.
How are payments processed?
Where you choose Umbrella employment, you’ll have an employment contract with the Umbrella company, which in turn, will engage contractually with the end-client or recruitment agency it is supplying you into.
The Umbrella will invoice the client or agency for its services (supplying its employee) and from this fee, the Umbrella accounts for its costs and retains a profit margin before paying a salary to you.
What are the advantages?
Umbrella contracting is very different from Limited Company or Sole Trader structures. Although you’ll no longer have the same tax efficiencies, there are plenty of advantages to working this way.
- Access to employment rights including holiday pay, sick pay, maternity/paternity leave, and pensions.
- Build a record of continuous employment with a singular tax code, making it easy to seamlessly switch between contracts and apply for mortgages or other bank loans.
- You will not be required to take on the same admin and accountancy responsibilities as Limited Company contractors. This means it’s a much simpler and easier way to work – allowing you to focus your time on delivering quality services and building your skills.
- Protection from any non-payment. The Umbrella company will be your employer and responsible for ensuring you get paid.
- Each Umbrella company will have additional employment benefits. With JSA Umbrella, we provide a wide range of insurance cover (as standard), the option to continue paying into your SIPP / Private Pension (for no additional cost), and access to our exclusive rewards programme which offers discounts on high-street brands, holiday and leisure savings, and a mental health support hub – among other great benefits.
If you receive an ‘inside’ SDS and need to work via an Umbrella company, we understand that it can feel daunting – especially if you’re set on Limited Company contracting.
But don’t worry, if you think you may take on ‘outside’ contracts in the future, you don’t have to stop Limited Company contracting completely. You can rest your PSC and explore more flexible working options, such as JSA’s IR35 Switch service which allows you to work compliantly both ‘inside’ and ‘outside’ IR35.
Advice & Support
If you’re considering Umbrella employment, we’re here to help. We can provide you with example take-home pay illustrations so you know exactly what to expect before you sign up. Click here to find out more about JSA Umbrella or get a quote here.