Is it safe to contract through an umbrella company?

With HMRC having recently communicated about the use of agencies and umbrella companies, this may have caused some confusion around the safety of contracting through companies like these.

We take a look at just how safe it is to contract through an umbrella company and debunk any misplaced myths.

Is it safe to contract through an umbrella company?

Yes, contracting through an umbrella company is perfectly safe, just as long as you use a reputable company.

One of the best ways to ensure you’re joining up to a trustworthy umbrella company is to check that they’re accredited by professional bodies, for example, at Contractor Umbrella, we are FCSA Accredited. FCSA is the gold-standard for compliance in our industry.

This means that we undergo a rigorous annual review of our processes and business practices to ensure that we operate compliantly and that our contractors are in safe hands.

Further, we are also SafeRec certified, where all our payslips are audited in real-time to prove to our contractors that our payrolls have been processed both compliantly and ethically and that all the correct taxes have been paid on to HMRC.

For more information on what we can offer you as an award-winning umbrella company, read our Benefits of Working for Contractor Umbrella page.

Other signs to look for in a good umbrella company are:

• Good reviews – whether it’s word of mouth or online reviews, it’s important to do your research and find out what people really think about the umbrella you’re considering working through.
• Awards – it’s a comforting factor knowing the company you’re considering working through has received recognition in their sector.
• How long they’ve been in business for – although everyone has to start somewhere, experience is key with any business and the longer they’ve been running, the more peace of mind you have that they know what they’re doing.

How to avoid non-compliant umbrella companies

Unfortunately, while the majority of umbrella companies will be compliant, you may come across some that aren’t.

Although a company like this might seem tempting at the time, perhaps offering you more take home pay, the risks of using a non-compliant umbrella company aren’t worth it.

Being caught out will result in you having to pay the tax that you likely owe, plus interest and even a penalty.

Umbrella company red flags to look out for are:

• If there’s a third party in the chain making the payment.
• If the umbrella company claims that you’ll be able to keep more of your earnings than others.
• If you’re asked to sign an annuity, loan or other agreement which involves a non-taxable element of pay.

If you believe that an umbrella company may be non-compliant, then you should contact HMRC as soon as possible by reporting it via an online form on the GOV.UK website.

Should I use an umbrella company?

While there are several different routes you can take as a self-employed professional, contracting through an umbrella company is usually the most appealing for many; especially for those who have just left permanent employment as it can feel like less of a leap into the sector.

You’ll have the freedom and flexibility that comes with self-employment combined with some employee advantages too, such as holiday pay, annual leave and not having to file your own taxes.

Read our Benefits of Using an Umbrella Company page for more information on this.

You won’t however, be entitled to certain contractor benefits, such as business expenses. Our page Claiming expenses as an Umbrella Company employee explains this in more detail.

The umbrella route is ideal for those who:

• are working on short-term contracts
• earn less than £50,000 per year, or £200 a day
• want a bit more security
• want to minimise administration and paperwork
• don’t want the hassle of knowing whether or not your contract falls in or out of IR35

If you’d like to sign up or need any further information on working through an umbrella company, please call one of our friendly experts on 01206 591 000 or email Jaime at jaime.thorpe@contractorumbrella.com.