How do Britain’s top contractors save money? The answer is more complex than it looks. Luckily in a recent survey umbrellasupermarket.co.uk 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Any contractor considering switching to an umbrella company will want to know how to find the best provider to work with.
Although you could spend your precious time and energy searching the web for the best umbrella company, there is an easier way – using an umbrella calculator.
In this guide, Umbrella Supermarket explains why every contractor should use an umbrella calculator in 2021.
If you are considering contracting you will need to decide on PAYE or umbrella.
It can be a difficult decision to make and contractors will inevitably be questioning which option will be the best for them.
To help every contractor get on the right track for them, in this guide Umbrella Supermarket looks at PAYE vs umbrella, outlining the key differences and how this will impact you.
There are many reasons that contractors across the UK opt to work under an umbrella company.
Umbrella companies offer an easy way to contract and remove the need for the contractors to worry about the burdens of admin, finances, tax and IR35, all things that limited company contractors have to deal with.
For this reason, many contractors will be weighing up their options and questioning whether it is worth using an umbrella company in 2021. To help make the decision that little bit easier, Umbrella Supermarket has put together this guide on the pros and cons of using an umbrella company.
Any contractor that is considering operating through an umbrella company in 2021 will need to understand Umbrella Company fees - from why an umbrella company charges fees, how they are paid to how much the contractor will pay.
In this guide, Umbrella Supermarket answers those all-important questions to help every contractor know exactly where they stand when it comes to umbrella company fees.
If you’ve made the decision to contract through an umbrella company in 2021, you will next need to find an umbrella company that’s right for you.
After all, there are lots of umbrella companies out there, so how do you know which one to choose?
To help you find the best umbrella company for you, in this guide Umbrella Supermarket outlines what makes a good umbrella company, so you can rest assured you’re making the right move.
One of the many advantages to operating through an umbrella company for contractors is that they become an employee of their chosen provider.
In turn, this means that the contractor will be automatically enrolled onto the umbrella company’s workplace pension scheme.
To help contractors find out more about umbrella company pensions Umbrella Supermarket has put together this handy guide.
If you are considering contracting through an umbrella company you will naturally have questions and queries over how they work.
After all, making the move to umbrella can be a big step for contractors. To help, in this guide Umbrella Supermarket explains how to get started with an umbrella company and share our top tips for using one in 2021.
PAYE or umbrella is a question asked by every contractor. Which one you opt for will have a big impact on your contracting career and lifestyle. So, it's important to make the right decision for you.
To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.
One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.
To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.
Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.
One way that contractors can work is through an umbrella company.
Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?
To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.
There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.
After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.
However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.
To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.
If you're considering making the leap to contracting, you will understandably want to know how much you will have to pay in umbrella company costs. After all, this amount comes directly out of the contractor’s pocket, so it’s important to be clued up on how much you should expect to pay.
To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.
