On a purely financial basis, it’s probably worth becoming a limited company contractor if you earn more than £200 per day (source: Umbrella Supermarket). But that decision ignores the fact that using an umbrella company will free up your spare time and ultimately that free time might be worth more to you than a few extra pounds in your pocket.
Yes a limited company is more effective the more you earn, but with greater financial freedom comes extra responsibilities. These include but are not limited to more paperwork for HMRC, the requirement to file at Companies House, time spent invoicing and chasing payments, additional IR35 scrutiny, and more.
However, if you’re earning less than £44,000 a year as a contractor (that’s still more than 50% higher than the national average wage) or you don’t want the additional burden of significantly greater administration, working with an umbrella company is probably the better choice.
There are hundreds of umbrella companies to choose from, some specialist and some run as separate divisions within accounting firms. When selecting an umbrella, what should you look out for?
In the past, umbrella companies have tried to compete with each other by promising that their contractors could take home ever higher percentages of the fees they’d earned from the client. For nearly 20 years, schemes that were more and more opaque were devised as artificial constructs allowing contractors to pay next to nothing in taxes and National Insurance. Of course, whatever savings they were allegedly making were swallowed up by big ongoing fees by their umbrella companies.
If something looks too good to be true, then it probably is. And in the cases of the poor contractors who were unknowingly duped or had their arms twisted into joining these schemes, it was too good to be true. They used schemes like “employee benefit trusts” which, because of an Act of Parliament passed in 2017, unfortunately came back to haunt them – click here to read more about the “Loan Charge”.
The rules surrounding how much tax and National Insurance you have to pay are enshrined in law. Legitimate and trustworthy umbrella companies do not compete on promising to find ways to ensure you pay less tax – they only compete on the fees they charge, one of which is the ongoing flat fee.
The flat fee is charged weekly or monthly and it’s a standing charge for using the umbrella company’s service. The flat fee is normally fixed. Be careful because some umbrellas quote their net fees – what their service costs you after tax relief has been applied to your income. Tax relief may be at 20%, 40%, or 45% so direct comparisons between umbrella companies can be complicated if quoted net. Always ask, where possible, for gross figures.
In recent years, the market has moved over much more to a fixed flat fee charging system and away from charging a percentage of the value of your invoices. Those umbrella companies who do charge a percentage of the value of your invoices often have caps on the maximum they’ll take every month however many don’t.
If you choose a company which does not offer a cap, the amount you pay them for what are essentially identical services to fixed flat fee providers may be much higher. Please consider this as an urgent wealth warning for contractors who are particularly high earners – please do your sums and get quotes before committing to any provider.
There are often a number of other charges you have to watch out for including:
Some umbrella companies also promote their services in tandem with their tax solution services – in essence, they’re promising to use their skills in accounting to make sure that you pay as little tax as possible. However, as ContractorCalculator warns, some tax solution providers do so using “a form of trust or offshore tax treaty.” The risks are higher when you use this type of company because tax law evolves on a continuing basis and, as we’ve seen with the Loan Charge, HMRC and the government can change their mind about an arrangement whenever they want. Then, they chase you retrospectively for allegedly-owed tax even though they had previously waived your tax return through. Never mess around with the HMRC – a subject we’ve covered before here on Umbrella Supermarket.
There is a high likelihood that you will come into contact via your work with other contractors. They are a great source of information about umbrella firms, how they treat their contractors, and how much they charge their contractors for their services. It’s always worth asking around for recommendations before making any commitment.
You are trusting your umbrella company to deal with your tax affairs promptly and accurately as well as safeguarding your employment rights. If HMRC wants to investigate you, it will be the umbrella company’s records of your activity that they inspect so they have to be correct every time.
Make sure that, on your payslip, that your expenses are shown clearly as are other fees and margins deducted from you. Be clear with your umbrella company about your expenses, who’s reporting them, and how they’re classified for taxation purposes.
You should expect to see your statutory pay on your payslip together with commission payments, holiday pay, and your expenses.
We all know accountants aren’t exactly quick off the mark a lot of the time. Not so with the umbrella companies that we work with here at Umbrella Supermarket.
Our service is simple and straightforward. Get a live quote in under two minutes using our online “umbrella engine” and we’ll come back to you virtually instantly with four great options based upon the preferences you give us. We’ll provide you with detailed rundowns of each of the options and how they’re best placed to achieve the outcomes you want. Then, all you need to do is to request a more detailed illustration from the umbrella company of your choice.
To start, 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.
