Umbrella Company Fees – How Much Should You Be Paying?

Umbrella company fees explained

When it comes to umbrella company fees, it’s important that every contractor knows how much they should be paying and what they are paying for. After all, umbrella fees are taken from your take home pay, so every contractor needs to ensure that they are getting good value for money.

To find the best deal, every contractor needs to do their research. After all, the cheapest umbrella companies are not always the best option, with low-cost umbrella companies often failing to offer a basic range of services which can cost the contractor more in the long-run. On the flipside, no contractor wants to be paying sky-high fees for services they do not require.

In this guide, Umbrella Supermarket explain how umbrella company fees work to help every contractor understand how much they should be paying for their desired levels of service.

How much do umbrella company fees cost?

The burning question on every contractor’s lips is how much they should be paying for their umbrella company fees.

Unfortunately, there’s no ultimate answer to this question with umbrella fees varying from company to company. Generally speaking, however, contractors can expect to pay upwards of £25 per week, with most umbrella companies charging anywhere between £25 - £30 per week or £80 - £130 per month.

An umbrella company’s costs will depend on the benefits and levels of service they offer which can include everything from higher pension contributions, help with childcare credits, same day payments to increased holiday pay.

It’s important to establish what the umbrella company fees cover to ensure you are getting the best deal for your needs. After all, contractors want to be paying for services they need and use.

How umbrella companies charge fees

The great thing for contractors is that umbrella companies deduct fees before they process the contractor’s taxable income. This means that in real terms the contractor gets back some of the fee by paying less in tax.

What to look out for

Although this is true, it’s important to look out for umbrella companies that advertise ‘tax-efficient’ payment structures and claim to be able to boost your take home pay. After all, the umbrella company’s fee is the only legitimate way they can compete with each other, which has led some companies to try to lure contractors in with illegitimate schemes.

Red flags to be aware of include umbrella companies that:

  • Pass only a portion of the contractor’s salary through the PAYE tax system
  • Pay the contractor through an offshore structure
  • Pay the contractor through a capital advance or share ownership agreement

Although these umbrella companies claim to be able to boost your income, this is not the case and can land you in hot water with HMRC. After all, it is the responsibility of the contractor, not the umbrella company, to ensure they are paying the right levels of tax.

Fixed fees vs percentage fees 

To understand how much you should be paying in umbrella fees, contractors need to understand the differences between how umbrella companies charge their fees as this will directly impact costs.

Generally, umbrella companies either charge fixed fees or percentage fees.

Fixed fees are exactly what they sound like – the umbrella company will charge a fixed fee, either on a weekly or monthly basis, which is taken out of the contractor’s income before it is processed for PAYE.

On the other hand, percentage fees, as the name suggests, are where an umbrella company’s fees are charged as a percentage of the contractor’s invoice value. It’s important to point out that with this option, contractors can end up paying higher fees for exactly the same level of service if their income increases.

Typically, fixed fees are the better option and are usually preferred by contractors as a way to control what fees they pay and avoid paying higher fees in case they land a higher-paying contract.

Net fees vs gross fees

Another variable that will impact the umbrella companies’ fees are whether they charge net fees or gross fees.

With gross fees, a contractor will be charged before tax relief has been applied. With net fees they are charged after tax relief has been charged. This is important to look out for as it can have a big impact on what you will pay.

Other hidden costs 

Some umbrella companies have other hidden costs that will impact how much a contractor pays.

In particular contractors should look out for:

  • Sign up fees: this is a fee the contractor will pay when joining the umbrella company
  • Exit fees: this is a fee the contractor will pay if they decide to stop operating through the umbrella company
  • Extra charges for same day payments: some contractors prefer same day payments which umbrella companies can charge extra for
  • Extra charges for added benefits: umbrella companies can also charge extra fees for added benefits such as increased insurance cover, processing expenses and any other admin tasks

Again, these extra umbrella costs can impact how much a contractor pays in fees meaning they’re important to look out for to ensure you are getting the best deal.

Find the best umbrella company with our umbrella calculator

No two umbrella companies are the same, with each offering different levels of service and charging different contractor fees. Although it’s great to have choice, this can make it confusing for contractors who want to choose the best umbrella company for them whilst finding the best deal possible.

That’s why Umbrella Supermarket’s handy tool let’s contractors input their personal preferences and compare the best umbrella companies in just 2 minutes. We make it easy for contractors to compare different umbrella companies and the fees they charge so you can make the best decision for you.

So, whether you’re after more money, IR35 compliance or service, why not see what our award-winning umbrella comparison site can do for you?

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