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Is Umbrella Company Right For Me?

Hi, I've been working for RBS for the past 6 months as an IT Contractor. The agency i work for is Hays Recruitment. They also pay me direct. My contract renewal is coming up and have been told to switch over to an umbrella company by quite a few of my colleagues but i just wanted to know if is worth my time and also would it benefit me.

I have looked through a few companies and i've seen one called GoUmbrella which looks quite simple to use and cheap regarding fee's. Another is Parasol which seems to have good feedback but the fee's they charge seem pretty expensive.

My premium rate of pay is currently £11.21. Any advice given i am grateful for.

CUK Contractors Respond:
"My premium rate of pay is currently £11.21." - Can you explain what you mean by that ???
When you say you are being paid directly by Hays, is this nett of tax and NI ?

Boox Respond:
Most Umbrella companies will be able to give you a breakdown of net pay between PAYE vs. Umbrella. Whilst you'll be paid under the PAYE scheme in both, with Umbrella you can normally claim more expenses (business expenses that is!). Have a look around. It's a very competitive market so you could look at the cheaper ones.

Parasol Respond:
In the interests of transparency I should declare at this stage that I work for Optionis group, home to Parasol. Nevertheless, I thought the below checklist might be useful. It covers some of the most important things to look out for when selecting an umbrella company.

1) Are fees fully inclusive or do you have to pay for extras such as expenses processing?

2) Does the umbrella company issue a legally valid employment contract? Remember – you’re entitled to all UK employee statutory rights and benefits.

3) How quickly does the umbrella company process invoices and payments? It’s one of the most common criticisms levelled at umbrella companies – that they’re slow off the mark in both claiming your payments as well as getting them to you. Check for a service guarantee.

4) Are they an accredited company with the Freelancer and Contractor Services Association (FCSA)? What other credentials does the organisation have – for example ISO9001 and Investors in People. Seems a bit obvious, but these are useful indicators that the company is well run.

5) Also investigate their background, trading history and reputation. How long have they been in business? Do they move money offshore? Are they a legitimate PAYE umbrella company or running an offshore tax scheme?

6) Legitimate allowable expenses. HMRC don’t and won’t approve non-compliant expenses. You will need receipts and you will need to play by the rules. There’s no way around it. Beware of any umbrella companies making grand claims about tax savings. If it looks too good to be true…

7) Clarify in advance the proportion of payment retained to cover holiday pay and other future entitlements. What’s held back? When will you see it?

8) Will you need to submit your own tax return and P11D (to account for your expenses) at the end of each year? What about your P60? Are these costs included or will you be charged extra?

Hope this helps

ContractorUmbrella Respond:
If you are going to be moving from agency payroll to umbrella company your rate should be increased to allow for the fact that employment costs and responsibilities will pass from the agency to the umbrella company.

If you incur costs as a direct result of the contract you may be able to claim these costs as expenses - the umbrella company should be able to advise you what is and what is not an allowable expense according to HMR&C regulations.

You should be aware that all legitimate umbrella companies work in exactly the same way - the only differential in take home pay should be as a result of variances in margin and nothing else.

Basically it all boils down to customer service and which company you feel happiest with - recommendations are a good indicator if you are new. Good luck

CUK Contractors Respond:
If you're seriously considering Parasol then you'd be advised to look back at some of the threads from earlier this year ... in particular the dissatisfaction at their additional "employment costs" fee (i.e. in addition to the agreed weekly fee) which effectively equate to 13.8% of your claimed expenses. I used Nasa for a while and recommend them. £9.99 per week and no hint of any hidden "employment costs" being deducted.

Also what i would like to confirm is what i can actually claim expenses for....? E.g Travel to and from work,meals etc etc

ContractorUmbrella Respond:
1. What costs are you going to be incurring as a direct result of the contract ?
2. What are you intending to do after you have finished this contract?

Well obviously travel to work everyday is an expense, meals and im pretty sure that's about is other than a few training courses here and there. My expenses every week with travel and food are around £80.

Also the £11.21 is my rate but out of that they take £1.21 an hour for accrued holiday.

ContractorUmbrella Respond:
Firstly, you can only claim for travel and subsistence if you are working under an over-arching contract of employment with the umbrella company and you intend to undertake more than one assignment whilst in their employment, secondly is that the rate that you are being paid now by Hays?

Yes that is the rate that hays are paying me currently.

ContractorUmbrella Respond:
Then it is not worth your while moving to an umbrella company unless the rate is increased - you would probably be worse off.

In what way would you mean worse off? Less take home pay?

CUK Contractors Respond:
What Contractor Umbrella is saying (i think) is that they are giving you the same rate PAYE as umbrella - there should be an increase in rate to cover the Employers NI at the very least.

Would they tell me this when i change over my details ? or should i ring hays as soon as?

CUK Contractors Respond:
When asking for the new rate just tell them you are going umbrella rather than PAYE and would like the Ltd comp rate. If its not different (which I would think it will be) explain that this will mean in essence you are paying Employers NI twice (once by the umbrella from the rate, and once with the part Hays were paying for you when you were PAYE, and it not coming in your ltd rate). There really should be the holiday part too.

ContractorUmbrella Respond:
Yes, exactly. You would still have to pay income tax and employee's NI and the umbrella company would have to pay employer's NI and would also take a fee, all from that £11.21 whereas, at the moment, only tax and employee's is being deducted at the moment. If the agency wants you to move to an umbrella company, who will then take on all the employer responsibilities, the rate should be increased to allow for that

Hi i got onto hays and they have confirmed that my rate of pay will be £12.30 if i switch over to an umbrella company. Would this then be worth my time? as i dont want to switch over to a company where i will be worse off.

ContractorUmbrella Respond:
Based on the info you have provided this would be your take home 37.5 hours @ £12.30 per hour with £80 pw. expenses:

Income 461.25
Expenses 80.00

Employer's NI 25.19
Employee's NI 21.91
Employee Tax 33.94
Total All Tax 81.04
CU Margin 27.50
Total Net Income 349.74

Would that leave you better off than you are now?

Well at present i take home £303.81 but also have 45.27 holiday pay taken out every week? so yes i would be slightly better off

ContractorUmbrella Respond:
The holiday pay would be paid back to you when you took holiday and an umbrella company would also deduct holiday pay (we take about £20 per week) so in real terms you actually wouldn't be any better off. I don't think that umbrella, in your current circumstances, would be the way to go.