Compare umbrella companies in 10 simple steps

Becoming a contractor or freelancer has been a life-changing career move for many skilled professionals. The prospect of working for yourself has loads of benefits, including a better work-life balance, more enjoyable assignments, increased income and the opportunity to improve skills along the way.

In recent years, the demand for umbrella companies has grown exponentially, and so has the number of companies offering PAYE payroll services. This is primarily due to the off-payroll reforms (also known as IR35). Off-payroll legislation was initially introduced into the public sector in 2017 and will be extended to the private sector from April 2021.

While the majority of these umbrella companies are compliant, unfortunately, some have acted unethically and have tainted the industry’s reputation by promoting tax avoidance schemes. With the marketplace set to grow even further with the upcoming implementation of off-payroll in the private sector, how do you know which umbrella to trust?

We’ve created a checklist for you to use when comparing umbrella companies:

Compliance

Without a doubt, the most important thing to consider when choosing an umbrella provider is whether or not they are operating in accordance with HMRC legislation and UK tax law. You could be working with an umbrella that offers the highest level of customer service and a very competitive rate. Ultimately if they are operating in a non-compliant way, it could land you in serious trouble with HMRC.

How do I know if an umbrella company is compliant or not? Don’t worry – this is a question we get asked a lot!

The simple answer is – always look for an FCSA or Professional Passport accreditation. The FCSA and Professional Passport are the UK’s leading independent auditors committed to promoting supply chain compliance for the temporary labour market.

For umbrella companies, contractor accountants and CIS payroll providers to achieve FCSA or Professional Passport accreditation, they must pass an annual audit to ensure their processes adhere to HMRC standards and the strict auditor’s code of compliance.

Are you looking for an umbrella company or contractor accountant but don’t know where to start? Please take a look at our directories to find an accredited and trustworthy umbrella company or contractor accountant. We also recommend you read our page dedicated to explaining how umbrella companies work.

Service

Second (only to compliance) is service. Although you do not need to be in regular communication with your umbrella company, you want to make sure that if you have a question, you can speak to someone and get an answer quickly. Are you given an Account Manager or access to a team who will look after you and be your single point of contact throughout your time with the umbrella? Are you given their direct dial or contact information, so you know who to call or email?

Is the process for submitting your timesheets simple and straightforward? Many umbrella companies will have an app, online portal or email for you to submit your timesheets. Make sure you are happy with the process before registering with an umbrella company so you can easily submit your timesheet each week/month to get paid. We recommend you read our umbrella company example and walkthrough for more information.

Knowledge

The legislation affecting contractors and freelancers in the UK can be complicated to understand and changes all the time. It is vital to use a company that operates ethically and is knowledgeable about legislation and how it affects you.

For example, if you’re a freelancer or self-employed contractor, you’ll likely have heard of IR35, and may be confused by the rules. IR35, or off-payroll as it is now commonly referred to, is a key piece of legislation in the temporary workforce industry and was introduced in April 2017, and is due to be rolled out to the private sector from April 2021.

When you use an umbrella company for your payroll it eliminates all risk of being caught by IR35 because all tax is deducted at source. However, if you are lucky enough to have contracts that fall outside IR35, you may still be able to use your limited company for these roles (and your take home pay retention is likely to be higher). Always use a company that can provide you with accurate and informative advice so you don’t get in trouble with HMRC!

For all the latest information about IR35, please check out our dedicated webpage.

Price and take-home pay

For many contractors, price is often the deciding factor for which umbrella they ultimately choose. And why wouldn’t it be? Who wouldn’t want to take home as much of their hard-earned cash as possible?

But please remember – when you compare umbrella companies, the only thing that will alter how much you take home is the fee they charge for the service – commonly referred to as the umbrella company’s margin.

Once you register with an umbrella, they will get your tax code from HMRC which determines how much tax you pay based on income and previous earnings. Your tax code will not change depending on which umbrella you pick.

Some umbrellas are misleading contractors by manipulating their take home pay calculations to make it seem like they will earn more. Why? To get their business. We recommend you ask these questions to understand if the brollies illustration is an accurate reflection of what you could go on to earn:

• What tax code is used in the illustration? Some providers use a tax code with a more generous tax-free allowance to give higher pay retention.
• How many weeks are included in the illustration? Umbrella illustrations are often based on 48 or 52 working weeks.
• What deductions are included in the illustration? Make sure all the tax deductions are present on your illustration – if they aren’t, ask why not?
• Have expenses been included? Unfortunately, legislation changes mean that the vast majority of umbrella employees are no longer able to claim expenses. Still, brollies may include these in the illustration to boost your take home pay.

We’ve got loads of useful tips on things to look out for when getting a take home pay calculation (or a “quote”) from an umbrella company. Please visit our Get a Quote page.

Insurance

Most compliant umbrella companies will include Public Liability, Employer’s Liability and Professional Indemnity insurance for free as part of the service. The amount of cover will vary between provider, but you should expect to get at least £10 million Public Liability, £2 million Employer’s Liability and £2 million Professional Indemnity Insurance.

Some roles may subject you to conditions that the average contractor doesn’t face and additional insurances are required. For example, operating a Heavy Goods Vehicle (HGV) requires Driver’s Negligence insurance to cover you for liabilities that may arise from claims made by members of the public, as well as protect your safety and goods inside the vehicle. If you require additional insurance, always check with the provider if this is something they offer and what the level of cover is.

Pension

It is a legal requirement for umbrella companies to enrol employees into a workplace pension scheme after 12 weeks of continuous employment. It is not obligatory to use the brollies pension scheme and you can opt-out if it is not something you require.

If you have an existing pension in place which you want to continue paying into, it is always worth asking if the umbrella company offers salary sacrifice. If they do, you can take a lower salary, and the difference is paid into your existing pension by your employer.

Salary sacrifice is a very cost-effective way of saving for your retirement as that amount effectively reduces your take home pay, so you’ll pay less Income Tax and National Insurance on your earnings too.

Relationship with agencies

Your recruiter may have suggested you take a look at their Preferred Supplier List (PSL) or Approved Supplier List (ASL) to help you choose which umbrella company to use. For an umbrella to appear on an agencies PSL or ASL, they will usually have to have either an FCSA or Professional Passport accreditation and have passed the agencies compliance check to ensure they are safe to engage with.

PSL’s and ASL’s when used correctly are a convenient tool as the agency has done a lot of the due diligence for you and narrowed down thousands of umbrellas into a less daunting list.

Please remember you are under no legal obligation to use an umbrella company on your agency’s PSL and if your agency is pressuring you to use a particular one – always ask them why? We have heard far too many stories about contractors being pressured into using a specific umbrella by their agency and find out later down the line that they have been using a tax avoidance scheme.

Ultimately this company will be handling your money and tax affairs, and regardless of what you’re told from your agency, you should always conduct your own due diligence.

Payment method

Once you submit your timesheets to the umbrella company and your agency or end client sends them funds, how long will it take for you to receive your hard-earned money? This is a crucial point to consider, and you should always ask whether the umbrella company uses BACS, CHAPS or Faster Payments as this will determine how quickly you are paid. So, what does each payment method mean?

Bankers Automated Clearing System (BACS) was, until recently, the most frequently used payment system and payment would reach your account within 3 working days.

Clearing House Automated Payment System (CHAPS) is often used for time-critical or high-value transactions. CHAPS guarantee same-day payment as long as certain cut-off times are met (usually 2:00pm); however, this usually incurs an additional charge.

In May 2008, the Faster Payments Service was launched and means businesses can now make one-off payments up to £20,000, and £250,000 (depending on the bank). Payments can be made 24 hours a day, 7 days a week. Payment will complete almost instantly and at no extra cost to the consumer. Most umbrella companies nowadays will use Faster Payments to pay their employees.

Reviews

The best way to find out what an umbrella company is really like is from other contractors’ reviews. A quick search of the umbrella you want to use into Trustpilot or Google will show all the positive and negative reviews contractors have left about the service.

Contractor forums are also a great way to find honest reviews about a brollies service, legitimacy and processes. And, if you can’t find a discussion about the one you want to use, why not start your own thread? Fellow contractors and freelancers will be more than happy to share their experiences with you.

Extras

Many umbrella companies nowadays will offer extras alongside their service for no additional cost. These can range from reward schemes to give you discounts when you shop online or in-store, to a discounted margin or vouchers when you register. If this is something you are interested lookout for promotional offers or ask about the extras you have access to and see if they can provide value to you personally.

Start your search with our top 10 umbrella companies  

So that’s it, now you can compare umbrella companies in 10 simple steps. Ultimately it is your decision which umbrella company you pick, and we recommend you conduct your own due diligence before you register with your chosen provider.

Still unsure where to start? Why not start by taking a look at our top 10 umbrella companies for a list of compliant and trusted umbrella providers.