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?

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To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.

 

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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.

 

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