PAYE Umbrella Company UK

What is an Contractor Umbrella Company?

Contractor Umbrella Companies exist in the UK to help contractors meet the requirements of recruitment agencies and end clients using their services and to make accounting for their tax more straightforward. They are an alternative to having to set-up and run your own limited company.

An Umbrella Company takes over your invoicing, cash collection and tax calculations while offering the protection and statutory rights of being an employee of a Limited Company.

A definition of an Umbrella Company:

Definitions of Umbrella include:
  • Something that covers or protects.
  • Something that encompasses or covers many different elements or groups.

The term Umbrella Company therefore came about because it is a company that offers protection to the contractor in that their tax position is made certain and there is no risk of wrong doing in respect of IR35. Most Umbrella Companies offer protection through insurances they provide and by the contractor becoming part of Limited Company (rather than self-employed). An Umbrella also brings together many contractors under one company.

 Define Umbrella Company: An Umbrella Company is a Limited Company (Ltd) or Limited Liability Partnerships (LLP) that helps clarify the tax position of contractors by making them its employees.

The work performed by the contractor is invoiced for by the Umbrella Company to the end client or Recruitment Agency for the services that have been performed. Once the cash has been collected it is redistributed to the contractor through employee wages after accounting for PAYE, National Insurance Contributions (NIC’s) and the Umbrella Company’s fee.

Umbrella companies arose because recruitment agencies and end clients employing temporary workers, who claim to be self-employed, can be held liable for tax in the event that the contractor is deemed that they should have been treated as an employee of the end client or recruitment agent by HMRC (Her Majesty’s Revenue and Collections).

Historically contractors could pay less tax than people who were employed doing the same work at the same rates and this was deemed unfair (or they avoided paying tax at all!).

Recruitment Companies and end clients will therefore normally only use the services of a contractor if they receive a valid tax invoice for the services performed from a Limited Company. Contractors therefore need to form their own limited company or join an Umbrella Scheme.

Wikipedia define an Umbrella Company as:

An umbrella company acts as employer to independent contractors who work under temporary contract, usually through a specialist employment agency. Recruitment Agencies will only issue contracts to a Limited Company. Since the introduction of the Managed Service Company (MSC) legislation in the budget 2007, the only way an independent contractor can comply with this requirement is to set up his or her own personal limited company or use an umbrella company. An umbrella company issues invoices to the recruitment agency (or client) and, when payment of the invoice is made, will typically pay the contractor through PAYE (although historically the term has also been used for salary and dividend type payment structures).

How an Umbrella Company can help you:

An Umbrella helps removes the stress of tax issues and administration for a Contractor working in the UK.

By joining an Umbrella Company you become part of a Limited Company and because you are then classed as an “employee” it clarifies your employment status as being outside the scope of IR35. Strictly speaking you are no longer a “contractor”.

Umbrella Companies:

There are a large number of Umbrella Companies to chose from including:

PayMatters LTD
Giant Umbrella Company
Brookson
Parasol Group
Drole Computing
Danbro
Lester Sybersolve
3- Sixty (Oxygen 360)
Paystream
Work2Live
MoneyBox 5
JSA
Liberty Bishop
JMK Umbrella Group
Contractor Umbrella
Umbrella4Contractors
Crystal Umbrella
Atlantic Umbrella
PlanIT Services
Orange Genie
RACS Group
Quality Umbrella
Dasa Consulting
Pay Check Services (Paycheck)
Sunday Solutions
NoLongerLimited - No Longer Limited
Sterling Group - Sterling CIS
Churchill Knight
Alternet UK
Paysure
Payerise/Payrise

Whether the Umbrella Company is based in Manchester, London, Birmingham, Leeds, Newcastle, Bristol, Glasgow or Edinburgh should make no difference as most umbrella companies have national coverage and the majority of information and contact can be by telephone or email.

The Benefits of Joining an Umbrella Company are:

There are a number of key benefits in joining an Umbrella Company. These include meeting your recruitment agency requirements, benefiting from tax relief for working in a temporary workplace and not having the stress or admin worries of running your own limited company.

For a complete list please visit:
Umbrella Company Benefits.

How joining an Umbrella Company works

The process of being part of an Umbrella Company is as follows:

  • You apply online or by telephone to become registered with the Umbrella Company of your choice;
  • They issue you with a contract of employment, their employment manual (covering Health & Safety, Disciplinary Procedures etc);
  • You return a signed copy along with your previous P45 (If you don’t have one they can send you a P46 to request your tax figures from your tax office - this helps prevent you paying emergency tax);
  • You give them details of your current contract (which must be expected to be less than 2 years in length in order to qualify for travelling expenses to a temporary workplace);
  • The Umbrella Company issues a contract to your end client or recruitment agency;
  • Each week or month you submit a timesheet of hours worked and expenses incurred.
  • The Umbrella Company will issue an invoices for services performed to the end client or recruitment agency and ensure cash is collected on the due dates;
  • Once the cash is received a PAYE calculation is performed so that the umbrella company benefits from the transaction by an amount equal to their fee, you then get paid the balance plus any expenses reimbursed; and
  • The Umbrella Company is then responsible for paying PAYE, NIC, Pension Contributions etc onto the appropriate 3rd Parties.

With an Umbrella Company you will still be primarily responsible for finding new work and will only get paid for authorised hours worked.

You are normally only charged a fee by your umbrella company while you use them and there should be no fees for joining or leaving.

Umbrella Company Alternatives:

  • Set-up and run your own limited company. Obviously there are administrative, cost issues and legal responsibilities in doing this. An advantage is that you can develop your own company brand and reputation.
  • Become an employee. We all know contractors can often command higher pay, have greater flexibility and job satisfaction from experiencing differing roles. In effect by joining an Umbrella Company you have the benefits of being an employee and the benefits of being a contractor.

Umbrella Company Pay and Tax Calculator

If you are considering joining an Umbrella Company your most important consideration is how much will I get paid.

The way an Umbrella Company works is you receive all the profit from your work performed less the Umbrella Company’s margin and costs (normally employers National Insurance which is calculated at 12.8% of you gross pay per your payslip). Costs can also include the contributions made to your Group Pension scheme if you choose to join one offered). 

This is then subject to PAYE and employee National Insurance. 

An advantge of working for an Umbrella Company is that you if you have costs incurred “wholly, exclusively and necessarily in performing your duties” these can be reimbursed to you tax free (out of the profit on the job). Typical costs include a scale rate rate mileage allowance of 40 pence per mile for travelling to and from the client. Also the cost of lunch (and may be breakfast and dinner if you are away from your home between certain hours).

The way an Umbrella Company discloses your wage can also be confusing. You are basically paid a net wage plus an expense payment. The way you net wage is disclosed is that you receive the statuory minimum wage for the hours you have worked. You also are paid holiday pay calculated as a percentage of your total pay. So you then receive the profit on your job the final element of your pay is a commission payment calcualted as the profit of the job less Umbrella Company expenses (which include your expenses claimed) less what you have already been paid as statutory pay/holiday pay.

If you wish to see a personal illustration please call PayMatters Umbrella Company on 0800 121 6513 and they can go through one on the phone and email you a summary.

Umbrella Company Trade Bodies / Associations

Association of Employment Management Companies - AEMC

Professional Contractors Group - PCG

The Service Providers Association - SPA

Recruitment and Employment Confederation - REC

Association of Technology Staffing Companies - ATSCo

 Looking for an Umbrella Company?

If you have read Umbrella Company reviews you are probably unsure which Umbrella Company to use? The good news is we can help you find an Umbrella Company. 

Umbrella Company.tv are part of PayMatters LTD and can be called for FREE advice on 0800 121 6513.

For customer service for existing clients, please call 0844 335 0169.

Alternatively visit their website: PayMatters.co.uk.

At PayMatters Ltd our aim to is perform regular Paymatters reviews to ensure our service offering is the best it can be. If you have a PayMatters review then we’d be delighted to hear from you.

Common Misspellings of Umbrella Company include: Umbrella Companys, Umbrela, umbreller, compnay,london umbrella company