Umbrella Company Glossary
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There is a misconception that umbrella companies are highly complicated. While there is plenty of information to get your head around, they’re far more straightforward than you might have imagined.
To help you understand umbrella companies better, we’ve created an umbrella company glossary that provides simplified definitions for many of the key terms and topics surrounding umbrella companies. Our site is full of resources to assist contractors and freelancers, and many of the definitions below link to further information that we hope you find helpful.
There are currently 6 Umbrella Company Terms in this directory beginning with the letter I.
I
Income Tax
Permanent employees pay tax through Pay As You Earn (PAYE) – HMRC’s tax system for collecting income tax and National Insurance. This means umbrella employees will see income tax on their payslips, and the amount depends on total earnings (higher earners will pay more tax). There is tax-free allowance – an amount you can earn before paying any tax. This is currently £12,570 for the 2022/23 tax year. The current rates of income tax are:
- Personal Allowance – up to £12,570, 0% rate of tax
- Basic rate – £12,571 to £50,270, 20% rate of tax
- Higher rate – £50,271 to £150,000, 40% rate of tax
- Additional rate – over £150,000, 45% rate of tax
- Personal Allowance – up to £12,570, 0% rate of tax
- Basic rate – £12,571 to £50,270, 20% rate of tax
- Higher rate – £50,271 to £150,000, 40% rate of tax
- Additional rate – over £150,000, 45% rate of tax
Insurance Cover
Compliant umbrella companies will provide employees with comprehensive insurance cover, including Employers Liability Insurance, Public Liability Insurance and Professional Indemnity Insurance. If you require additional insurance, many umbrella companies have excellent relationships with specialist contractor insurance providers, so don’t hesitate to ask for increased protection if necessary.
IR35
IR35 is legislation introduced by the government in 2000 to ensure ‘disguised employees’ pay their fair share of tax. A temporary assignment is either inside IR35 or outside IR35, and it’s the end hirers' responsibility to make a fair and accurate determination.
IR35 (Inside)
Contractors who accept a role inside IR35 will work in very similar circumstances to full-time employees and, therefore, must pay the same tax (PAYE). For inside IR35 roles, umbrella companies are generally considered the best payroll option – for accuracy, transparency, compliance and efficiency.
IR35 (Outside)
Contractors who seek work outside IR35 can operate through a personal service company (PSC) and can pay themselves efficiently with a combination of salary and dividends. Anyone working on an outside IR35 assignment is considered self-employed by definition.
IT Contracting
IT Contracting is a very popular website full of helpful resources for contractors about limited company contracting. If you require more information about personal service companies, umbrella companies, mortgages, banking, insurance and specialist guides, please visit IT Contracting today. The site is also regularly updated with new articles which cover relevant topics impacting the sector.
