If you’re new to umbrella companies, you will probably have many questions about how they work and process your payroll. Our Team has put together a complete guide to umbrella companies, and it sets out to answer all of the most commonly asked questions about umbrella companies and how they operate. To find out what is in our guide and download it now, please keep reading.
Downloading our complete guide to umbrella companies
The guide called The Complete Umbrella Company Guide: Written for the 2021/22 tax year is available to download here. You can view the guide immediately and there is no need to enter any personal information.
What is an umbrella company?
Umbrella companies are payroll intermediaries that act as the employer of temporary workers for payroll purposes. They process all payments with PAYE to ensure workers’ pay the correct tax and National Insurance Contributions (NIC) to HMRC.
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How do umbrella companies work
When you join an umbrella company, you become an employee and must submit timesheets. Your agency/client will send your gross funds to your umbrella company, and the umbrella will make the correct deductions before paying you your net salary.
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Umbrella company example
Our guide features an example of a worker joining an umbrella and then getting paid, with all the information you need in-between. Our umbrella company example is really helpful and explains the entire process in an easy-to-follow way.
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Registering with an umbrella company
Registering with an umbrella company isn’t difficult, but it might be rather time-consuming. The best and compliant umbrella companies will have streamlined their registration process, meaning it should not take much longer than 15 minutes to join. However, umbrellas require a lot of personal information – by law (for example, address, date of birth, NI number, banking information, assignment information, etc.).
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Umbrella company take home pay calculations
Understanding take-home pay with an umbrella company is one of the main concerns contractors and freelancers have – and it’s no surprise. To put it simply – all umbrella companies (compliant ones) will process your payment in the same way. This means umbrella company calculations between compliant providers should all be the same – depending on the margin. However, this isn’t the case. We have discovered that many umbrella companies deliberately hand out inflated pay calculations to try and trick workers into using them over a competitor. Our umbrella company guide will help you understand what you should realistically expect to retain through an umbrella company, and we highly recommend you have a look.
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Holiday pay with umbrella companies
When you work through an umbrella company, you’ll need to consider holiday pay. This is usually paid to you each time your salary is processed. Or, you can accumulate it in a “holiday pay” pot and have it paid in bulk at a later date (accrued holiday pay).
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Umbrella company expenses
Umbrella company employees are usually unable to claim expenses because of legislation introduced a few years ago (2016) called Supervision, Direction and Control (SDC). However, if your agency agrees, you could be eligible to claim tax relief on reimbursed expenses. Our guide has more information.
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Umbrella company margin
The only thing that will vary between compliant umbrella companies is their deductible margin for providing you with their payroll service. For example, if you identify two compliant umbrella companies with a £20 per week margin – you would retain the same amount of salary with each – to the penny.
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Employment costs
Employment costs can be confusing, and they are the main difference between those in permanent employment and those being paid by an umbrella company. The employment costs include Employer’s National Insurance Contributions and the Apprenticeship Levy. When negotiating your contract rate with your recruitment agency or directly with your client, you should consider these.
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Umbrella company payslips
In our complete guide to umbrella companies, we have included an accurate example umbrella company payslip with an explanation for each of the deductions. It’s well worth checking out. We also have an example umbrella company payslip on our website.
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Advantages of using an umbrella company
There are plenty of advantages to using umbrella companies for your payroll, including insurance cover, Employee Rights, minimal administration, and more.
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Disadvantages of using an umbrella company
There are drawbacks to using umbrella companies for your payroll, including a lack of control over your finances, PAYE (which could be seen as a negative compared to contracting through a limited company while outside IR35), it’s difficult to claim expenses, and more.
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IR35
If you’re a contractor or freelancer, you’ll almost certainly be familiar with IR35. However, it can be complex and challenging to understand. We’ve written a summary of IR35, including the difference between being inside and outside the legislation and why you may be better suited to an umbrella company than other payroll options.
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Tax avoidance and disguised remuneration
Whichever umbrella company you use, you must choose one that is compliant with HMRC’s rules and regulations. Never use a tax avoidance or disguised remuneration scheme because the consequences could be severe. We’ve explained how to identify a tax avoidance scheme and why you should avoid them at all costs.
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Compliance within the sector
The government doesn’t currently regulate the umbrella company sector. Over the last few years, a couple of unscrupulous providers have damaged the industry’s reputation by offering tax avoidance schemes and putting vulnerable workers at risk of non-compliance. Two self-regulatory bodies are doing a fantastic job enforcing compliance within the supply chain of temporary workers – the Freelancer and Contractor Services Association (FCSA) and Professional Passport. We highly recommend you only use an umbrella company with accreditation from one of these two bodies. Our guide explains more.
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Download our free umbrella company guide now
Click the following link to download The Complete Umbrella Company Guide: Written for the 2021/22 tax year.
Top 10 umbrella companies
We have put together a list of our top 10 umbrella companies, and we recommend you check it out. Each of our top 10 is accredited by either the FCSA or Professional Passport, and some of the umbrellas have special offers at the moment. Please go and take a look.
