Agents vs. Umbrellas: two questions...

[istvan]

Hi,
I am sure this information is somewhere in these threads, but even after days of research I am not able to find it. Let me summarize my understanding of Agents vs. Umbrellas, and please correct me if I misunderstood it.

The purpose of an Umbrella company is to pose as the business entity between a contractor (an individual) and the Client. So, the relationship between Umbrella and Client is B2B, whereas the contractor becomes an employee of the Umbrella. I would use an Umbrella if I were to find a Client directly and do not want to bother with incorporating a business for myself.

Agents (I heard other references to this profession - I shall not mention here), on the other hand are the “brokers” connecting you with Clients. If a Client decides to take you on an assignment, the Agent becomes your employee (probably through an Umbrella they have an arrangement with) and negotiates a rate much higher to the Client, so they have a hefty cut in the deal.

So, if my understanding is correct, both a Client and a Contractor has the incentive to skip an Agent and find each other directly. How do I know, for example searching through “jobserve” whether I see an ad from a Client and not an agent? Of course, I see the value of an Agent as well. They have much better understanding of the market than I will ever have.

Another question: If I use an agent, do I have to worry about Umbrellas, or will I have no choice in the matter anyway, they will pick theirs for me?

I appreciate if you can either confirm my understanding or correct it.
Best regards,
Istvan

[Wanderer]

The purpose of an Umbrella company is to pose as the business entity between a contractor (an individual) and the Client. So, the relationship between Umbrella and Client is B2B, whereas the contractor becomes an employee of the Umbrella. I would use an Umbrella if I were to find a Client directly and do not want to bother with incorporating a business for myself.

Ahh, you're pretty close.

Typically you use an umbrella if you don't want to go through the hassle and admin of incorporating a Limited Company, you won't be contracting for very long, you are a low paid worker (~ £150/day or less) or if you like paying huge amounts of tax. Probably not a bad idea if you are just arriving in the country and finding your feet, getting a bank account can be a pain and you can't operate a company without one. When you renew your contract you can setup a LTD company if you choose to. You aren't stuck with the umbrella forever.

You can choose to use an umbrella if you found your job directly with the client or through an agent, it makes no difference.

Some agents may insist that you use their "preferred" umbrella, this is to simplify their admin and possibly to stop people getting ripped off/dicked around by dodgy umbrellas.

The definition of dodgy may or may not include companies that uses any of the following phrases in their advertising: "off shore", "scheme", "Employee Benefit Trust", "loan scheme", "Isle of man" or ones that offer you a take home pay which somehow avoids paying the correct amount of tax or encourage you to avoid tax by making bogus expense claims for costs you didn't actually incur.
Make sure you are paying a flat fee to the umbrella with no tie-in (ie, you only pay them if you are working).

Have a read of the sticky in the Accounting Legal forum too http://forums.contractoruk.com/accou...composite.html

Agents (I heard other references to this profession - I shall not mention here), on the other hand are the “brokers” connecting you with Clients. If a Client decides to take you on an assignment, the Agent becomes your employee (probably through an Umbrella they have an arrangement with) and negotiates a rate much higher to the Client, so they have a hefty cut in the deal.

I think you meant the Agent becomes your employer. Yes, some agents will put you on their payroll and pay you as an employee but that's not all that common. Generally you will work through an umbrella or LTD company as above.

The agent will take a percentage, not always a hefty cut but could be anything from 5% to 50% of what the client pays them.

So, if my understanding is correct, both a Client and a Contractor has the incentive to skip an Agent and find each other directly. How do I know, for example searching through “jobserve” whether I see an ad from a Client and not an agent? Of course, I see the value of an Agent as well. They have much better understanding of the market than I will ever have.

I would always reply direct to a client rather than use an agent if I had the choice. Going direct with a client means you may have to produce a contract or the client may offer one to you. If you need a contract then consider joining the PCG, they are good guys and have templates etc that you can use.

Another question: If I use an agent, do I have to worry about Umbrellas, or will I have no choice in the matter anyway, they will pick theirs for me?

They will almost certainly recommend one to you if you ask them. Just don't go with anything "dodgy".

Once you've done 6 months work in the UK you can have a think about forming a LTD company and IR35 etc but for now I'd say go umbrella until you get setup.

Good luck!

[istvan]

Thank you Wanderer, you were very helpful.