Choosing the right path for you.
Using our knowledge, scope and experience we will make a clear path for your contracting experience. Whether you choose an umbrella company, a PSC (Personal Service Company or Limited Company) or an alternative to maximise your income, we will make your choice crystal clear.
Not all Umbrella Companies are created equal
An umbrella company is a business that recruits agency freelancers for short-term contracts, usually through a recruitment agency in the UK. Recruitment firms like to award contracts to a limited company since the agency’s liability is reduced and ensures the company complies with employment and tax law.
It sends bills to the recruiter (or customer) and pays the contractor via PAYE when the invoice is paid. You will be considered as an employee with all of the company’s employee rights if you use a traditional PAYE Umbrella Company.
The umbrella company would bill the agency at the negotiated rate (not your salary), deduct an administration fee, Employer’s National Insurance, and the apprenticeship levy, and then give them an invoice. The umbrella company would pay you via PAYE on the remaining amount after subtracting the applicable tax and employee national insurance, as well as any pension contributions.
Umbrella companies do not find work for their employees, they are a payment solution only.
The tax laws on agency workers and off-payroll working (IR35) do not apply to you if you work for an umbrella company.
The umbrella company pays you since they are your employer. They will pay you for the work you complete for the employment agency’s clients, deduct any PAYE (Pay As You Earn) income tax and employee national insurance contributions due from your pay.
The agency receives payment from the client for your services.
The agency deducts a charge for placing you with the customer and pays the remaining funds to the umbrella company.
This rate differs from the rate you receive from the umbrella company due to the umbrella company’s additional costs. These costs include administration costs, employer National Insurance, employer workplace pension contributions, holiday pay, and other amounts to cover other specific costs, such as the Apprenticeship Levy.
The agency’s payment to the umbrella company must cover the cost of the employer’s National Insurance contributions. This money will be used by the umbrella firm to pay employer contributions rather than deducting them from your gross income.
Your contract rate, as well as the rate you receive from the umbrella firm, should be included in your employment contract. It’ll usually be an hourly rate at the National Minimum Wage plus a taxable sum that’s referred to as a bonus or extra pay. This is your take-home money (your pay before deductions).
Your umbrella company may be including you in a tax avoidance scheme if any of this amount is labelled as non-taxable.
If the Umbrella company offers expenses (*Subject to SDC) they will do so in one of two ways: by assisting you in filling out a P87 (Claim Income Tax Relief for Your Employment Expenses) at the end of the year, or by agreeing on an amount of claimable expenses with your umbrella company at the start of your contract.
PAYE deducts Income Tax and employee National Insurance contributions, as well as any additional deductions like workplace pension contributions, from your gross salary. The remainder is the amount you take home.
Employer’s National Insurance contributions cannot be deducted from your gross pay by an umbrella company. Contact your employer (the umbrella company) if you believe your employer’s National Insurance contributions were deducted incorrectly from your gross salary.
Other contract management tools are available from some umbrella firms. They claim to be entirely compliant with HMRC and to avoid the problems of IR35, however we advise staying away from EBTs, offshore companies, and loan schemes.
Working overseas might be a challenging decision; yet, several umbrella companies have an International arm. The answers will be diverse and will differ from one country to the next.
We made them happy
It’s a minefield out there with so many different umbrella companies or umbrella type companies, this is the first site that actually helped me decide which one I needed. It turns out, I set up my own limited company, I use an app to send my invoices and collect expenses, I have complete control over all my money and my accountant does the rest. Perfect! Thank you Crystal Choice.