Umbrella companies are a smart choice for many contractors and freelancers. Their security and ease of use are very appealing, and their secure and hassle-free nature means they are an excellent first step for people new to the freelancing world.
However, most people are understandably hesitant when working with an umbrella company for the first time. Contractors will look for certain accreditations and certifications that give them the trust factor. That’s why so many contractors search for a list of HMRC-approved umbrella companies.
Unfortunately, there is no list. In short, that’s because there’s no such thing as ‘HMRC-approved’. Read on as we explore the world of umbrella companies, why HMRC-approved isn’t a legitimate selling point, and reveal our top tips for finding secure organisations to work with.
Whether you’re looking for HMRC-approved umbrella companies or just the best deal for you, it’s important to get a good understanding of what exactly they are and what they can offer you as a contractor.
A good umbrella company aims to offer the independence you get as a contractor, alongside the perks and security of full-time employment.
They will serve as an intermediary between a contractor and their client, removing the hassle that comes with being self-employed. Tax and National Insurance especially are a minefield to navigate, so having someone there to assist through headache-inducing finances can be a real asset.
Your umbrella company will also assist in all admin work which will result in you having much more time to prioritise business concerns such as finding clients, delivering results and driving revenue.
An HMRC approved umbrella company is supposedly one which has been approved by Her Majesty’s Revenue and Customs (HMRC), which is in charge of collecting income tax and National Insurance from businesses and self-employed individuals.
However, the phrase ‘HRMC approved’ is a misleading term in itself, as HMRC doesn’t provide approval per se.
HMRC simply works with the umbrella company as they would with any other employer. The company is responsible for calculating the correct amount of tax and National Insurance due and paying it on your behalf. Unfortunately, this means there’s no simple list of HMRC approved umbrella companies.
The closest thing to an HMRC-approved umbrella company is simply one which acts compliantly in terms of tax and other employment factors. Here are two key areas to consider.
The umbrella company is your employer in your relationship and therefore is liable to pay employment taxes through PAYE. However, there are thresholds to be aware of with regards to Income Tax which will increase incrementally as your earnings increase.
For example, any earnings between £12,500 – £50,000 are taxed at 20% whereas on the other end of the scale anything over £150,000 is taxed at 45%. These are good figures to remember when totalling up the amount of work you take on as it could significantly change what you ultimately receive in your wage packet.
Anything in between those bands is taxed at 40%, while you get the first £11,850 as a tax-free allowance. Keep in mind as well that you will not pay Income Tax on the first £1,000 of income on your earnings from self-employment as this is known as your trading allowance.
It is essential to take note that when paid by an umbrella company, it also means that you will pay National Insurance as both an employer and an employee. Understandably, as an employee of an umbrella company, you will be required to pay Employee’s National Insurance as you normally would when working for a business.
However, since the company is not directly benefiting from the work that you are carrying out and only serving as an intermediary, you will also be paying Employer’s National Insurance.
Be wary of umbrella companies who use scrupulous tactics to lure in contractors such as advertising a better rate by secretly avoiding paying the right amount of tax.
For example, some umbrella companies will promise a take-home wage that equals 85% of your net pay. While this might sound like a high rate, the reality is that you would be leaving yourself open to substantial fines and claims for tax and interest as the contractor will be the one who will be left out of pocket.
Most of these companies have a clause in their small print to the effect that although the umbrella company will pay expenses without receipts, you will need them if HMRC were to investigate you. So if this were to be the case, you could face a hefty fine when you are unable to show proof of your purchases.
A reputable umbrella company will never encourage you to claim expenses that you haven’t incurred, and most will check all your costs claims to ensure that you stay on the right side of HMRC.
It would help if you also were mindful of companies with a complicated payment scheme involving any artificial arrangements such as loans and investments.
Another way in which umbrella companies help contractors stay compliant with HMRC is through IR35. Again, this is an area where some umbrella companies may be disingenuous and claim to be ‘IR35 compliant’. However, all umbrella companies are IR35 compliant by nature, so it’s not really a selling point.
IR35 is a piece of government legislation that aims to target individuals who work via their own limited companies and in the eyes of government are ‘disguised employees’ to reduce their tax payments.
Introduced in 2000, IR35 was brought in as a way of countering individuals who would receive payments from clients via an intermediary and split profits to be placed in lower tax bands.
Partnering with an umbrella company allows for individuals to circumnavigate IR35 completely as PAYE will tax all income.
With HMRC approval, IR35 compliance and all the other ambiguous terms, searching for a reliable umbrella company can be tricky and time-consuming. At Umbrella Supermarket, we aim to make the whole thing a snap.
Our umbrella company comparison site allows you to compare the best companies across the UK, helping thousands of contractors find a company that suits their needs. Give it a try today
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.
