Discover how 76% of contractors used this secret to save money

How do Britain’s top contractors save money? The answer is more complex than it looks. Luckily in a recent survey found that 76% of contractors had saved money by comparing umbrella companies online.

As a general rule, the secret to saving money as a contractor is to find an umbrella company which not only maximises the amount you save on tax but also one that minimises the level of fees you pay for that service.

But simply weighing one fee against another won’t actually help, because not all umbrella companies offer the same level of benefits for their fee, with some offering money saving benefits that far outweigh their initially hefty fees.

Many contractors, particularly those earning £200 a day or less, choose an umbrella company over a limited company because the benefits far outweigh any associated costs. Whereas contractors earning over £200 per day will need to weigh up more than just the financial benefits on offer.

With an umbrella company, the benefits on offer vary as much as the fees they charge. With the right umbrella company contractors can get access to a host of employment based benefits like gym memberships, healthcare and even holiday pay. Additional benefits help reduce expenditure and put money back in the pockets of contractors. But without an umbrella company comparison site, weighing up tax breaks, benefits and umbrella fees is no mean task.


What is an umbrella company?

Although you’re an independent contractor, for the purposes of paying your taxes, an umbrella company is your “employer”. The umbrella company and the client (or recruiter) draw up and agree to a contract for the provision of your services.

The client (or recruiter) then pays the invoices generated as a result of the timesheets you’ve submitted to the umbrella company and then the umbrella company pays you what you’re due out of that money minus your tax and national insurance liabilities. At the end of the tax year, your umbrella may then reclaim your allowable expenses against your tax bill resulting in a small tax refund (although due to the new IR35 rules this isn’t always possible).

As your employer, the umbrella can offer you a host of benefits (usually paid for by your umbrella fee) much like normal employees would enjoy.


Umbrella company fees

There are generally two types of charging structures used by umbrella companies – the more common method is a flat fee per month and the less common a percentage of the invoices issued for the time-sheeted work completed during a month.

Contractors earning more than £50,000 a year should nearly always select a flat fee rate however, for all contactors, you may prefer having the predictability of a flat fee per month for greater predictability over your regular outgoings.

Always make sure that you ask for the gross rate charged by an umbrella company rather than the net rate – comparing with net rates may end up in your choosing a more expensive umbrella company than you need.

Umbrella company benefits to look out for…



Having insurance, and having the right insurance, is a priority for all contractors – we’ve written about it before here. Please read our guide to work out the type of insurance you need to provide clients and yourself with the protection you need and ask each umbrella company you’re consulting with about the insurance they can provide you with and the costs attached.

Marriage allowance

If your civil partner or spouses earns less than the current tax-free allowance of £12,500, then they can transfer up to 10% of their allowance to you meaning that your personal tax-free allowance is effectively increased to £13,750. Doing this will save you £250 in income tax for the 2019-2020 year.

Child benefit

Tax-free childcare, a new Government scheme, launched fully in 2018 offering contractors a reduction in their childcare costs by up to 20% subject to a maximum of £2,000 a year. Ask an account manager at your potential umbrella partner whether they are geared up to support you in making the most of this scheme.

Holiday pay

All UK employees are entitled to 28 days’ paid holiday leave every year and umbrella employees are no different. If your goal in becoming a contractor is to have more holidays than this during the year, check with each umbrella company competing for your business to see if they can assist you with this and how they can help.

Sick pay

If you think you might need to continue receiving income, albeit reduced, to cover household expenses and other bills during periods of illness, check what arrangements each umbrella company has to offer before you make a decision.

Employee Benefits

In order to differentiate and promote client loyalty, lots of umbrellas now offer employee benefits as part of their packages. Benefits can include, cycle to work schemes, cinema ticket discounts or even free coffee. It’s important when considering the fee you’re paying to an umbrella what benefits you’re getting back because it might actually be the case that if you extensively use the benefits on offer you could actually save money each month despite paying a higher fee.


Pluses and minuses

Every umbrella company is different. Some of the benefits we list above, like insurance, may be included in your monthly fee and others may not. On some occasions, the umbrella company offering the lowest monthly rate without insurance included may become more expensive than other umbrellas whose rates include insurance.

Due diligence is important for all contractors here – the taxman is going to take enough of your money so you need to make sure that whoever else has an entitlement to pay themselves through the value you add to clients’ work is kept at a minimum.

That’s why using an umbrella company comparison website has become so popular in recent years. Let Umbrella Supermarket do the searching and the due diligence for you.


Umbrella Companies aren’t above the law

On the subject of due diligence, umbrella companies can not compete with each other on the amount of income tax and National Insurance you pay. No umbrella company has a special arrangement with HMRC that their contractors can pay less than the contractors employed by other umbrella companies.

Umbrella companies are only able to compete with each other – legally – on the fees they charge and the level of service they offer. Beware any umbrella offering radically lower income tax and National Insurance arrangements, especially if the words “off-shore”, “loan”, or “benefit trust” appears in their sales copy.


Help from Umbrella Supermarket to find the right umbrella company for you

There are hundreds of umbrella companies in the UK right now competing for your business but how do you sift through all of the offers to find the best one for you? The answer is to start your search through Umbrella Supermarket.

To start your search, please click here.

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