The truth about HMRC approved Umbrella Companies

Do HMRC approved Umbrella Companies exist?

What is an HMRC approved Umbrella Company?

In answer to the question ‘does an HMRC approved umbrella company exist,’ the short answer is no.

This is due to the fact that every single umbrella company out there is classified as any other type of employer by HMRC. For this reason, HMRC has explicitly stated that it does not approve some umbrella companies over others.

Some umbrella companies state that they are HMRC approved as a marketing stunt designed to capture the contractor’s attention.

For this reason, it's essential to instead look at the range of the services and benefits the umbrella company can offer you, not at whether they are HMRC approved or not.

That being said, although an umbrella company can’t be classified as HMRC approved, they can be classified as HMRC compliant or not.

The majority of umbrella companies that exist are HMRC compliant, however, just as in any industry, there are a few that are not. This means it's key that contractors know what to look out for in order to avoid working with an umbrella company that isn't HMRC compliant, as this can be particularly damaging to the contractor.

To help, next, we will look at how to spot an umbrella company that isn't HMRC compliant.

Spotting an Umbrella Company that is not HMRC compliant

If a contractor is found to be working with an umbrella company that isn’t HMRC compliant, it will be them, and not the umbrella company, that will face penalties and a bigger tax bill. This is because it is the sole responsibility of the contractor, and not the umbrella company, to meet their own tax obligations.

Thankfully, HMRC has published a guide to help self-employed workers such as contractors identify companies that are not compliant.

Red flags contractors should look out for include:

Umbrella companies that process only a part of your salary through payroll

The first factor to act as a warning sign is an umbrella company that offers to process only a part of your salary through the payroll, giving you the remainder of the amount directly.

In these cases, only the fraction of your salary which has been put through the payroll is subject to tax, despite the fact that the whole amount should be. This is classified as tax avoidance and means that the contractor hasn’t paid the correct levels of tax.

As we have mentioned, it will be the contractor that is made liable for this, not the umbrella company. If you are found out, you will face a bigger tax bill and possible fines by HMRC.

Umbrella companies that claim you can keep up to 95% of your wages

Another red flag to look out for is an umbrella company that claims the contractor can keep 80-85% of their wages whilst remaining tax compliant.

This is not the case since the basic rate of income tax is 20%, and National Insurance contributions are also taken from your earnings.

Umbrella companies that pay the contractor through either loans, credit, or investment payments

Some umbrella companies will offer to pay the contractor through a loan, credit or investment payment because these avenues are not subject to income tax.

Again, although these umbrella companies will state that this is a legitimate way to pay the contractor, HMRC has said this counts as tax avoidance. So, if you are caught, you will be made personally liable for not paying your tax.

Umbrella companies that route payments through other companies

Finally, the last thing to look out for in an umbrella company that isn’t HMRC compliant is one that routes payments through several other companies before it ends up in your pocket.

So, now you know what you're looking out for, how can you find an HMRC-compliant umbrella company?

How to find an HMRC approved Umbrella Company

We know that no contractor wants to get caught out by the small number of illegitimate umbrella companies out there. That's why many look for a list of HMRC approved umbrella companies. Yet, as we've already stated, this doesn't exist.

However, by looking out for the red flags we have outlined, you should be able to quickly and easily spot an umbrella company that isn’t compliant, meaning you can steer clear.

For more help with choosing an umbrella company, check out our handy guide on what to look out for when comparing umbrella companies.

Ready to find a compliant Umbrella Company with the help of Umbrella Supermarket?

Here at Umbrella Supermarket, we only ever work with trusted, HMRC approved umbrella companies, so you can rest assured you’re only ever choosing the best, most reputable umbrella companies out there.

With our handy contractor calculator, we let contractors compare umbrella companies in a matter of just seconds. Input your details, such as your contractor preferences and daily rate, and we will show you a list of the best-suited umbrella companies for you.

We highlight what contractors will receive in return from the umbrella company, including services and benefits, and will even show you what your payslip will look like under the chosen company. In essence, we make it easy for contractors to find their perfect match. To see how we can help you, why not give it a go for yourself today?

Would you like more information on The truth about HMRC approved Umbrella Companies?

Explore More Resources

using an umbrella company

Beginner’s Guide to Using an Umbrella Company

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 and Umbrella

Guide to PAYE vs. Umbrella

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.

Holiday Pay for Umbrella Contractors

Complete Guide to Holiday Pay for Umbrella Contractors

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.

umbrella company

When Shouldn’t You Use an Umbrella Company?

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.

umbrella company costs

How Much are Umbrella Company Costs?

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.


Choose Between PAYE or Umbrella

How to Choose Between PAYE or Umbrella

Every contractor faces the decision between PAYE or umbrella, but how do you know which is the best option for you?

After all, PAYE and umbrella both have key differences, meaning contractors should do their research to find the best path for them.

Thankfully, Umbrella Supermarket is here to help. In this guide, we take a look at PAYE vs. umbrella, explaining what you should know before making the all-important decision.

date rates vs hourly rates

Should contractors choose hourly or daily rates?

There are many decisions a contractor must make in their career. One important one is whether to charge daily rates or hourly rates.

Each option has its own pros and cons and will have a different impact on contractors.

Therefore, it’s important that every contractor does their research to find out which option is best for them.

In this guide, Umbrella Supermarket looks at hourly rate vs daily rate and the benefits and drawbacks of each, to help every contractor find the best route forward for them.


public sector private sector contractors

How to choose between public sector vs. private sector for contractors

Every contractor must make the decision about whether to work in the public sector vs private sector.

Operating in the public or private sector can have a big impact on the contractor’s career, including on what types of contracts they will work on, who they will work with to whether they will fall under IR35.

This is especially true since changes to IR35 legislation were rolled out in April this year which have had a significant impact on private sector contractors.

If you are debating between contracting in the public sector vs private sector, Umbrella Supermarket are here to help. In this guide, we outline the key differences between the public and private sectors and what effects this will have on contractors.

contractor options

Complete Guide to Contractor Options

Contracting has become an increasingly popular way of working in recent years. If you have decided that the time is right to begin your contracting career, one of the first questions you will ask yourself is how you will operate.

How they operate is one of the main decisions contractors must take which will have a big impact on your day-to-day contracting life.

After all, there are a number of ways you can work, including through an umbrella company or by being self-employed.

In this guide we look at umbrella company contracting vs self-employed contracting and the main advantages and disadvantages of each, to help you make the right decision.


Statutory payments

Statutory payments for contractors explained

Contractors can choose to work on a self-employed basis through their own limited company, or through an umbrella company as an employee of the provider.

Thousands of contractors choose the umbrella route. After all, there is a range of benefits to operating under an umbrella company, including receiving statutory rights.

If you are considering becoming an umbrella contractor in 2021 and want to know more about statutory payments for umbrella contractors, Umbrella Supermarket has put together this handy guide outlining everything there is to know.

comparing umbrella companies

What To Look Out For When Comparing Umbrella Companies

Working through an umbrella company has become an increasingly popular option for contractors in the UK.

An umbrella company makes contracting easy and hassle-free for contractors, saving them headaches on everything from tax, payroll, insurance to dreaded IR35.

However, with are so many umbrella companies out there, choosing the perfect one for you is no easy task.

To help, Umbrella Supermarket have put together this handy on what to consider when comparing umbrella companies, so you can find the best one in 2021.

umbrella company

How Does an Umbrella Company Work?

In light of recent IR35 reforms that came into force in April 2021, many limited company contractors are now thinking about making the move to Umbrella.

However, understandably, many will want to know more about umbrella companies and how they work before taking the leap.

To help these contractors decide whether Umbrella is the best move for them, Umbrella Supermarket have put together this ultimate guide on everything there is to know about umbrella companies in 2021.