An Umbrella company is a popular working option for many contractors.
However, like most things in life, there are upsides and downsides with Umbrella working, so you will need to decide (with our help) whether it’s the right option for you.
When is it beneficial to use an Umbrella company?
If you take on a role that is subject to IR35, employment via a good Umbrella company is a compliant way to work. This is particularly pertinent to contractors whose roles are being classified as inside IR35 as a result of new rules being introduced in April 2020.
However, Umbrella is also a good option for contractors who do not want to run their own limited company or PSC. This is because it removes the hassle of tax and business admin (your tax and other deductions are sorted out by the Umbrella firm).
Plus, Umbrella gives you the freedom of working as a contractor along with the benefits of being an employee. So, you can still pick and choose the work you do, but enjoy the protections of sick pay, holiday pay, maternity/paternity pay and other statutory benefits.
Why would you think twice about Umbrella?
The main downside with Umbrella contracting is that it results in lower take-home pay than limited company contracting. This is because you pay income tax and National Insurance like any other employee, and it is highly unlikely you will be able to claim tax relief on expenses.
We can help you, whatever working option you require. We can provide advice and guidance as well as detailed pay illustrations to help you compare the take-home pay of limited company (PSC) contracting with working as an Umbrella contractor.
GET A FREE DETAILED PAY ILLUSTRATION
How an Umbrella company works
We provide Umbrella services through our parent company, JSA Group. Once you’re registered, you simply:
- Complete a timesheet at the end of each pay period and get it signed by your end client (the company you’re providing services to).
- You send the timesheet to your employment agency and the agency sends a copy on to us.
- We raise an invoice for the hours you have worked and this goes to your employment agency.
- Your employment agency sends an invoice to your end client.
- Your employment agency receives payment and then pays us.
- We deduct our costs and profit margin then pay you after deducting your tax and National Insurance and any other deductions the law requires us to make.
How Umbrella pay is calculated
If you are thinking of working as an Umbrella contractor, we will be able to provide a detailed pay illustration which shows you exactly how your take-home pay is calculated. In general, your payslip will detail the following:
- An assignment rate
This is the rate you see in the advert for a role. It’s the rate paid by the employment agency to the Umbrella company for supplying its employee (ie you).
- Umbrella margin
The Umbrella will take a margin from the assignment rate it receives from the agency.
- Employment costs
These are the costs your employer would need to account for, such as Employers’ National Insurance, on the salary that it pays you. These are deducted from the Assignment rate the Umbrella receives from the agency.
- Gross pay
Your pay would typically be the value received by the Umbrella (the Assignment rate) less the Umbrella margin and employment costs.
- Income tax
Your pay is subject to income tax. There are different tax bands – basic rate, higher rate, and additional rate – applied according to how much you earn.
- Employers’ National Insurance
As you are an employee of the Umbrella company, you have to pay National Insurance.
What to do next?
If your contracting role ‘inside’ IR35, or is likely to be classified as ‘inside’ after the off-payroll reforms are introduced and you need to switch from limited company (PSC) contracting to Umbrella, please get in touch. We have helped hundreds of contractors in this situation so we can provide tailored advice and guidance you need to work compliantly.