Monday, August 9, 2010
Umbrella companies are companies that serve as employers to individual contractors working under fixed term contracts. In essence an umbrella company works as a vehicle for managing all of the admin traditionally associated with contracting, leaving individual contractors to concentrate on the contracts themselves. An umbrella company will take on invoicing, collecting payments from clients and / or agencies, organizing national insurance contributions and calculating tax as well as passing on money to the contractor's bank account. The individual contractors will go about their contracts as usual, but at the end of the day / week / month will submit expenses forms and timesheets to their umbrella company. Thereafter the umbrella company will handle the rest.
There is of course a fee for this service and this can vary from company to company. But for most contractors this fee is a price worth paying as the umbrella service takes some of the hassle, and often some of the tax, out of contracting. Indeed umbrella companies have become more and more popular in the last few years since the UK Treasury introduced the IR35 legislation (designed to determine employment status and ability to make use of company tax reliefs) and the legislation dealing with Managed Service Companies.
Previously contractors had relied on composite company structures known as Managed Service Companies (MSC's) in which individual contractors were shareholders of the company but did not take part in the company management. The Treasury introduced legislation in 2007 that prevented MSC's from being used to avoid income tax and National Insurance and since then, umbrella companies, which are not covered by the MSC legislation, have become more and more popular amongst contractors.
In the last couple of years however, contractors have sought out more robust solutions such as Employee Benefit Trusts. An Employee Benefit Trust offers all the same advantages as an umbrella company (no invoicing, admin, company duties) with none of the problems - EBT's do not require expenses forms or timesheets, and they also offer added security as contractors are given full employment status, statutory rights and benefits (whether contracting in the UK or overseas), as well as professional indemnity cover. Finally and most importantly, the Employee Benefit Trust guarantees a far higher gross to net ratio than any umbrella company can offer. Umbrella companies typically offer up to 65% gross to net whereas EBT's offers a return on contract of up to 85%.
The Bedouin Group is an Umbrella Company alternative. They offer contractors a easy solution for their payroll solutions.
Article Source: http://EzineArticles.com/?expert=Alex_Simmonds
