Our latest video summarises the most common disadvantages of using an umbrella company for payroll. Please keep reading to see the video and the transcript and learn more about our new YouTube Channel.
If you haven’t got time to watch the video above – don’t worry. Below is a transcript that includes the most commondisadvantages of using an umbrella company– from the perspective of a contractor or freelancer.
Umbrella companies are an excellent payroll solution for temporary workers inside IR35 because they help ensure workers’ pay the correct taxes. However, umbrellas are not desirable for contractors and freelancers who are used to being paid through a personal service company while outside IR35 because take-home pay is likely to be lower. You could argue that umbrella companies are less tax-efficient than contracting through a limited company outside IR35.
By joining an umbrella company, you become an employee and will be paid your funds into your personal bank account. While many see this as a benefit because it’s straightforward, some consider it a disadvantage of using umbrella companies because of the lack of control over finances.
Before legislation called Supervision, Direction and Control was rolled out by the government in 2016, many umbrella employees could claim tax relief on travel and subsistence expenses. However, the legislation stopped this, and claiming expenses through an umbrella is no longer common. If you believe you should be entitled to claim legitimate reimbursed expenses, speak with your end-client, recruitment agency and umbrella company.
When using an umbrella company, you will be reliant on your end-client and recruitment agency to ensure you are paid on time. This is because your funds are passed down the supply chain. Therefore, if your umbrella is late receiving your funds, you may be late being paid – and it isn’t necessarily the fault of the umbrella.
Some of the most-established umbrella companies will provide a high-quality service. However, some of the perks of using their service may not be as attractive as those available to permanent employees. For example, umbrella companies will provide you with Statutory Employee Benefits. Other extras made available to permanent staff may include access to a gym, food at work, free parking, healthcare, and more. An umbrella company will unlikely be able to provide the same level of extras for employees.
With over 500 umbrella companies in the UK, it can be challenging to identify the best provider for your circumstances. Unfortunately, a growing number of non-compliant umbrella companies are targetting temporary workers, and sometimes they disguise themselves well. Before choosing an umbrella company, always make sure they are compliant. We recommend that you only seek the services of an umbrella company with an FCSA or Professional Passport accreditation because these businesses have undergone strict audits to ensure they operate compliantly and in the best interests of their employees.
You may also be interested in viewing another video we have made outlining the advantages of using an umbrella company.
YouTube Channel – now live
We’ve been busy behind the scenes creating a series of basic but informative videos designed to answer the most commonly asked questions by contractors and freelancers about umbrella companies. The Umbrella Companies YouTube Channel is now live, and we highly recommend you take a look. Please don’t forget to give each video you watch a thumbs up!
Top 10 umbrella companies
We have collated a list of our top 10 umbrella companies to help make your search for your next payroll provider easy! All of our top 10 are accredited by the Freelancer and Contractor Services Association (FCSA) or Professional Passport, and some have special offers at the moment. Please check it out now!
