umbrella companies

mannews

I may have a chance working for a company where I will be paid by an umbrella company. This is the first time I have heard about this. Can anyone explain to me the pros and cons, recommend any good and adivse any bad umbrella companies please.:eek:

PasturesNew

What this means is you will actually be self-employed, however, the umbrella acts as your employer and produces all your payslips, holiday pay, etc.

Usually it works the other way round in that you'd go looking for contracting work and find a contract, then you'd hand that over to an umbrella company and say "I don't want to set up a Ltd company, please be my umbrella company and pay me with a wage slip and holiday pay".

If I get to be a contractor again, I will be using an umbrella company because for me it's easier. For you, who hasn 't chosen it, it sounds like the employer has found the umbrella company and is using that route instead of putting the job with an employment agency where the employment agency would be your employer.

Just make sure you understand the rate of pay you'll actually be getting. Is the employer telling you the rate that they pay the umbrella, or are you being told the rate you'd get.

Working under an umbrella, you can charge expenses, which would reduce your pay, but you'd get those paid to you tax free. That might not make sense if you don't know what an umbrella is though.

PasturesNew

Rather than me try to explain how an umbrella company works, read this:
http://en.wikipedia.org/wiki/Umbrella_company

bookduck

You could do much worse than these http://www.payschemeplus.com/en/Home.aspx

A large proportion of our contractors happily use the above

oscruft

I've been working through various umbrella companies for around five years and they are very easy to use. You simply work as you would normally work, and at the end of the week, send them your time sheet. They will they invoice your client and when the receive the money back they deduct all taxes etc. and pay you. It is exactly the same as being employed direct.

One thing to remember though (which I failed to realise the first time I went through an umbrella company), when you are employed through an umbrella company, as well as being liable for PAYE and NI, you are also liable to pay your employers NI. If you find a contract through an agency, they should offer you a PAYE rate and an Umbrella rate. The Umbrella rate will be higher to reflect this extra tax.

Some contracts that you find will dictate who to use as an umbrella company, but if you get a choice make sure you research it fully. All umbrella companies use the same calculations to ascertain your take-home pay. The only differences are the fee that they charge (typically around £20-£30 a week, but this is tax deductible) and the service that they offer you.

If you need more information, I recommend freelancesupermarket.com

I found my current contract here, and also my most recent umbrella company.

Remember that you will be liable if you pay too little tax due to claiming expenses, not your umbrella company!

mannews

PasturesNew wrote: »

For you, who hasn 't chosen it, it sounds like the employer has found the umbrella company and is using that route instead of putting the job with an employment agency where the employment agency would be your employer.


PasturesNew, thanks for the advice, only thing had a chat today with them and they don't tell me who my umbrella is to be, I will have the choice. Sorry if I gabve you the wrong impression, not knowing what an umbrella company was I did not know how it would work that was all.

mannews

I am getting confused when you all say make sure that you understand what they are paying the umbrella company and what I would be getting. Do they not pay the umbrella company my rate of pay and then the umbrella company takes my fees of £20-£30 off and my tax and NI, and when you say I pay my employers NI, I am confused. How would it work if they said I would get £15ph(hyperthetically of course).

seaweed5254

i've posted a question on another thread as i am interested to know what the difference between an agency and limited company rates. i am doing contract work now (for the 1st time) and i was given a lower rate than what me and the agency agreed upon. I told him i want PAYE and not via limited company.
the rate he has put in the contract is 'limited rate' accdg to him which is lower than the rate when i accepted the offer. and the NI and tax are also deducted from this limited rate...i'm also confused.. i haven't signed the contract until now.

oscruft

mannews wrote: »

I am getting confused when you all say make sure that you understand what they are paying the umbrella company and what I would be getting. Do they not pay the umbrella company my rate of pay and then the umbrella company takes my fees of £20-£30 off and my tax and NI, and when you say I pay my employers NI, I am confused. How would it work if they said I would get £15ph(hyperthetically of course).

Your umbrella company will invoice your client your rate x hours/days worked + Vat. From this your umbrella company will deduct their fee, Employers NI and Holiday and Sick pay (they legally have to deduct holiday and sick pay, but you can claim this back at any time - It usually equates to only around £30 a week). After these have been deducted you are left with your gross pay. From this gross pay your umbrella company will deduct NI and PAYE tax to leave you with your Net Pay. Their fee should always be tax deductible. For example, I pay £25 a week, but the actual cost to myself is around £13 a week.

I don't know how much you would be taking home on £15 an hour, but a colleague of mine is on £19 an hour, and he kindly leant me his last payslip to use as an example for you (cheers roger!). Last week he worked 37.53 hours which meant the total receipts were 713.07. £24.66 was deducted for holiday and sick (he is accumulating it for when his contract ends- good way to save!). £66.16 was deducted for employers NI and £25 was deducted for his umbrella fee. this leaves his gross pay of £597.25. This figure is what is liable for NI and PAYE tax. His NI deduction were £54.17. The PAYE tax will vary depending on your earnings for the year so far.

The HMRC have a PAYE tax calculator (couldn't post the URL for some reason, but go to google and type PAYE tax calculator HMRC) which will be the same calculation which your umbrella company will use.

The advantage of umbrella companies is the expenses that you can claim. For example, if my friend claimed that he drove 400 miles to and from work each week, he could claim £100 in travel expenses(40p per mile x 400). This £100 would reduce his gross pay by £100, so he pays less tax, then it gets added on to the net pay.

Hope this helps!

seaweed5254

thanks, but why did the agency charge me a 'limited' rate (e.g. 10% lower than the agreed rate when they offered the job)and then they also deducted the NI and tax. i told them i want to be PAYE bec it seems complicated for me , and not worth it if my contract is only 3 months. And i never heard of limited companies before as i have always had a permanent job.
The HR mgr of the company i am working with right now already made a complaint to the chairman of the agency and they will investigate. they also charged her more than what was agreed upon.

oscruft

seaweed5254 wrote: »

thanks, but why did the agency charge me a 'limited' rate (e.g. 10% lower than the agreed rate when they offered the job)and then they also deducted the NI and tax. i told them i want to be PAYE bec it seems complicated for me , and not worth it if my contract is only 3 months. And i never heard of limited companies before as i have always had a permanent job.
The HR mgr of the company i am working with right now already made a complaint to the chairman of the agency and they will investigate. they also charged her more than what was agreed upon.

Your situation does seem unusual. The limited rate should be higher than the PAYE rate because the agency should not be doing any work (in that they will not be paying any taxes etc). You have said that the agency have deducted NI and tax, which suggests that you are being employed directly by them.

I suggest that you try and miss out the middle man and go straight to the end client. They will prefer this as it will mean they end up paying less (e.g. pay your rate and not your agency rate). Ask your HR manager if they could employ you direct, or employ you as a contractor, and go direct through an umbrella company. This should result in you getting a slightly higher rate as your client will simply pay the invoice that the umbrella company sends them.