For many small businesses and contractors, one of the biggest administrative burdens is managing the payroll. Large amounts of time can be spent on the payroll processes, when in business terms this time would be better invested in working with customers and developing commercial ideas. For this reason alone, the payroll activity is frequently outsourced, but there are also other good reasons for managing the payroll online and through an external agency.
What an umbrella company does
One of the solutions that many contractors and entrepreneurs turn to in managing their payroll administration is an umbrella company. The essence of an umbrella company is that it provides a payroll service to contractors by processing the payroll while enabling business expenses to be set against tax, and eliminating the need to deal with IR35 legislation. The umbrella company acts as an intermediary between contracting parties to collect all the relevant data in respect of the contracts, and to process this so that payment and taxation are competently and comprehensively handled.
The benefits of payroll solutions through an umbrella company
Contractors and small businesses that choose to handle payroll and contract invoicing through an umbrella company can glean a number of advantages. The first of these is the general benefit that persuades many small businesses to outsource administrative components of their work. Namely, the umbrella company reduces the bureaucratic burden on a contractor or entrepreneur and frees time for operating and growing the business. Next, as a specialist in payroll and taxation issues, the umbrella company can potentially save the business money by effectively using valid taxation principles to balance expenses against taxation and reduce the overall tax bill. In addition, the umbrella company, by gathering all the necessary data, ensures that contracts are properly fulfilled in terms of invoice payment and financial settlement.
Tips on choosing an umbrella company
After deciding to use an umbrella company, there are a few tips for contractors and entrepreneurs concerning what to look for when choosing the right umbrella company for their needs. As with any business transaction, the primary means of assessing the suitability of an umbrella company lies in the clarity and level of fees to be charged. Fees at any stage of the business relationship should be fully transparent and listed in detail, so that fair comparisons can be made between companies to ensure that there are no nasty surprises at any stage. In addition, a track record that shows high levels of expertise and sound, wide-ranging experience is to be preferred. Full liability and indemnity insurance cover is also essential.
In addition to these more common sense points of comparison, it is also good to choose an umbrella company that provides a simple and personal online service. The management of data online should be clear and easy, and it should be possible to contact a competent representative in person, if the need arises. Furthermore, the umbrella company should be able to show that it operates procedures in expenses and taxation that are both transparent and comprehensive, in line with current tax requirements set out by HMRC.