How does an umbrella company work?
The umbrella company is like the middle man between an umbrella contractor and their client; the umbrella employs a temporary worker on behalf of an employment agency and the agency will then provide the services of the worker to their clients.
The umbrella will give the contractor their payslip; paying for the work completed and deducting any income tax or National Insurance Contributions (NICs) due, as well as administration costs.
For more information on how umbrella contractor pay works, you can read our Using an Umbrella Company – Who Pays Me? page.
Umbrella company charges – what is meant by ‘umbrella margin’?
An umbrella company doesn’t necessarily charge what you may call a ‘fee’ for their services. This is because the margin is recovered from the umbrella income, and not charged directly to the worker – which would also make it liable for VAT.
But of course an umbrella company, like all businesses, will need to make some sort of profit in order to survive. This is where you may have come across the term ‘umbrella margin’, which covers the administration costs such as running payroll, insurance, plus any other operational overheads.
What should I look for in an umbrella company?
When it comes to looking for an umbrella company, doing your research is vital. You want to ensure that the company is genuine and that you have a high level of commitment, as well as complete trust in them.
So, what to look for in a good umbrella company?
- Personal service
Having a personal touch really is important for a hassle-free umbrella experience. You need to know that you have a go-to person if you have any queries or issues that you want resolving quickly.
- Look at reviews
Whether it’s word of mouth or doing your own research, it’s important to know what people are saying about a company.
- How long have they been in business for?
The longer an umbrella company has been in business, the better. This means that they have plenty of experience, which in turn should make them experts in their field, which can only benefit you!
- Do they have any awards?
Being recognised for their achievements in the sector is most certainly a comforting factor when it comes to choosing an umbrella company.
If you want to read about what we can offer you as an umbrella company, visit our page Why Choose Contractor Umbrella?
Tax avoidance schemes
Although most umbrella companies will be legitimate, when you’re looking to register with one it’s important to be aware that there are some out there working as a tax avoidance scheme.
If you are caught using one of these schemes you’ll have to pay the tax that you owe, plus interest and potentially a penalty on top of that.
Look out for the warning signs, which could include:
- Making claims that you’ll be able to keep more of your earnings compared to other companies.
- A third party in the chain making the payment.
- Being asked to sign an annuity, loan or other agreement which involves a non-taxable element of pay.