An Umbrella company is a company set up for the purposes of acting as an employer for contractors who work under a fixed term contract.
Payments are usually made through a recruitment agency. Payments are made to the Umbrella Company, who will then deduct relevant taxes, and pay the contractor as an employee (or director) of the company.
The contractor will normally get a monthly (or weekly/fortnightly) payslip, and annual P60 similar to an employee. The contractor may also receive expenses, as part of their regular payments.
Umbrella companies are most commonly used by contractors who intend to be ‘contracting’ for a short term, with a view to going back to regular employment. This allows them to retain employee status (PRSI Class A) and therefore employee benefits, while also benefiting from some of the advantages to being a contractor.
The alternative of using and Umbrella Company, for a contractor, is to set up their own Limited Company. As some contractors do not want the hassle of operating their own limited company, then the Umbrella Company is better suited for their needs.
Also check out our Ultimate Guide to Contractors’ Company Options and Tax Saving Structures
How Does an Umbrella Company Work?
It is the responsibility of the Umbrella Company (usually owned, operated and managed by a firm of accountants e.g. Liam Burns & Co, who are also Chartered Tax Advisers) to manage invoicing, taxes and payments for the contractor.
There will be a contact in place between the Client/Agency and the Umbrella Company for the contractor’s services.
The Umbrella Company ensures that all your tax obligations are complied with as well as ensuring that you are covered for standard workplace insurances.
Taxes and expenses are deducted at source, leaving you with the most efficient nett pay (i.e. take home pay) as possible.
Contractors simply send their timesheets and expenses to their assigned accountant and he will invoice the client or agent. Once payment is received from the agent/client, the payslip will be processed and sent to you and payment will be made directly to the contractor’s personal bank account.
At the start of each calendar year, a P60 will be provided to the contractor – this is a summary of their earnings and taxes paid for the previous year. Amounts on this form do not include, expenses received.
As part of the service to contractors, Liam Burns & Co offer ongoing tax planning advice to ensure that contractors are not only compliant and tax efficient, but are aware of longer term tax planning opportunities that are available.
This unique service ensures that contractors receive all the benefits of being a contractor and are continuously being made aware of the most efficient ways to manage their earnings.
Need advice or information on tax accounting services? Contact Liam on (01)5677380 or use the enquiry form
Advantages of Umbrella Company Structure
- Maintain PRSI Class A Contributions
- Retain €1,650 PAYE Credit
- Guaranteed tax compliant
- Claim Business expenses tax free
- Lower costs than Limited Company Structure
- Minimise administration burden
- Utilise annual Tax Free Voucher
- Utilise Tax Free Termination Payment (where possible, when leaving)
Disadvantages (versus Limited Company Structure)
- Employers PRSI is deducted at source from earnings (10.75%)
- Restricted pension options
Tax/Accountancy Fees for Umbrella Structured Company
- No Set up Cost, No Leaving Cost
- Monthly fee of €100 (to Liam Burns & Co) – Automatically Tax Deductible ergo an effective cost of €50 per month at marginal tax rate.
How to Get Started in 5 Easy Steps
(if you are changing accountant the process is also straightforward)
2. We will set you up under the PAYE of the Umbrella Company, registering you for taxes etc.
3. You will need to send us a copy of Photo ID, Utility bill (Proof of Address) and P45 from previous job (if applicable)
4. We will liaise with your agency to get your contract drawn up under the Umbrella Company
5. We will issue you a contract of employment between you and the Umbrella Company
More Tax-Saving Resources for Independent Contractors
Read 8 important tax-saving tips for IT contractors in Ireland and download a free IT Consultants Accounts Workbook
Self-employed Consultants: What expenses are really acceptable to the Revenue Commissioners?