Umbrella companies

IKWeb

I am looking to work for some agencies with regards to I.T Work throughout the UK. Some of them have said they would advise i work though an umbrella company to do my tax, and NI payments. Does anyone on here have any experience working with these types of companies, good or bad?

Or is it worth me doing my own Tax and NI payments and going self employed?
Any advice would be great.

Thanks

SarEl

IKWeb wrote: »

I am looking to work for some agencies with regards to I.T Work throughout the UK. Some of them have said they would advise i work though an umbrella company to do my tax, and NI payments. Does anyone on here have any experience working with these types of companies, good or bad?

Or is it worth me doing my own Tax and NI payments and going self employed?
Any advice would be great.

Thanks

Some agencies will not accept "self-employment" - they will only deal with a ltd company (so you would have to set one up yourself - which may be worthwhile, but it does have drawbacks). We sometimes use contract staff for things, and some of them have registered with umbrella companies. From what I have gelaned from talking to them, they vary and it is worth shopping around or getting recommendations if you are going to go down this route. It can also depend on whether you intend to contract for a long time or are just filling in some time - I believe that they may be more costly (I am told) than having your own company in the longer term, but like I said, that can have it's own drawbacks, especially if you don't intend to be doing this for the long haul.

I know that at least one of the agencies we deal with for professional staff will not take anyone on unless they have either an umbrella company or their own company.

SarEl

PS - One of my paralegals (who started with us as an agency worker) tells me that I should add that rates of pay can be different too - hourly rates may be lower if the agency does tax and NI, and higher if you do it yourself, but in order to ensure that you do pay up they have to ensure that they are paying to a company who are legally liable to get it right! Apparently we pay a higher rate to contract workers who have a form of company status - whether their own or an umbrella company. Goes to show how much notice I take of these things because I never knew that!

terra_ferma

I was helping a friend to do some calculations just yesterday!

If expenses are only travel (£35approx) and subsistence (lunch only, most umbrellas allow £5 per day), she calculated that she would need to earn £2 extra to match the PAYE pay.

£24.22 umbrella = £22.22 PAYE
(35hrs per week, however we did not take into account any holiday pay, just did the weekly amount)

if you have more expenses it will be lower, as you can deduct them from your taxable income.

So Umbrella is a good idea if you have lots of expenses you can deduct, or if the difference in the rate is high.

HTH

IKWeb

Only expenses I can think of would be..

London Congestion charge
Food
Petrol

terra_ferma

forgot to say that the ltd rate would have been the same as umbrella (agencies she was dealing with had two rates, ltd and paye).

SteProud

IKWeb wrote: »

I am looking to work for some agencies with regards to I.T Work throughout the UK. Some of them have said they would advise i work though an umbrella company to do my tax, and NI payments. Does anyone on here have any experience working with these types of companies, good or bad?

Or is it worth me doing my own Tax and NI payments and going self employed?
Any advice would be great.

Thanks

Hi there,

I work for an umbrella company so I am not impartial but there are lots of good impartial websites out there that include guides to choosing an umbrella.

I'm not alllopwed to post a link as a new user but if you go to the Contract Eye website, or Contractor Calculator, there are some really useful articles there.

A correctly structured umbrella company should provide a complete professional employment service for contractors which will include a full contract of employment, HR support, guaranteed hours of work, invoicing and timesheet management, tax and National Insurance contributions (PAYE and NICs) and statutory HMRC notifications.
A good contractor focused umbrella will also issue invoices on the your behalf, collect payments from clients/agencies, calculate tax and NI contributions and pay you your net pay direct to your personal bank account, without holding on to it.
Umbrella company employees are also able to claim tax relief on expenses incurred in the course of undertaking their work (travel, subsistence and overnight expenses etc.) which will usually uplift take home pay. To assist them, umbrella companies have negotiated dispensations with HMRC to derive higher levels of operational efficiency. This is achieved by streamlining administrative processes and in some cases eliminating the need for receipts.
A word of warning here though! It has to be acknowledged that there are some unscrupulous providers out there who claim to have dispensations and will abuse them by encouraging you to claim for un-receipted expenses you may not have incurred. This is extremely bad practice and any good umbrella service provider will urge you to claim only for genuine expenses and encourage you to keep all your receipts regardless of any dispensation. You should be able to produce all receipts in the event that the HMRC requests them.
Be wary of claims such as ‘HMRC approved’ or ‘IR35 compliant.’ HMRC does not approve or accredit companies so this doesn’t actually mean anything. Neither does IR35 compliant in the context of umbrella companies as you will be taxed under normal PAYE as an employee.
In addition, with a good umbrella company, you will be fully supported by its HR function in the event of a grievance or disciplinary procedure, be entitled to a package of employment rights and have access to a range of affiliate offers such as discounts on financial and legal products plus other contractor benefits.
Spending a bit of time online doing the research will help you make your selection but don’t rely on the providers’ website for advice as they may not be impartial. There are plenty of good contractor websites though which will have lots of useful advice. It’s worth spending some time lurking on various contractor forums as well. You will soon get a feel for which companies are popular and which have a bad reputation amongst your peers.
Next, make sure you have a clear understanding of each umbrella’s fee structure and identify any hidden costs such as a leaving fee. Does the umbrella charge you a fixed monthly or weekly fee or do they charge a percentage of your gross invoice value? What is included in the fee you are paying e.g. does it include professional indemnity or employer liability cover etc?

The next thing to establish is the umbrella’s payment frequency and its speed of invoicing. How often do they run payrolls in order to ensure their contractors are paid as quickly as possible? And how long does it take to raise your invoice after you’ve submitted your timesheet? All of these factors will impact on how quickly you will be paid.

Ask any potential umbrella which agencies they work with. This will give you some indication as to their popularity in the industry. With that in mind though, some agencies will have a preferred suppliers list (PSL) but remember this is not a recommendation and will not necessarily have been put together on an objective basis. Also find out how long the umbrella has been in business and how many contractors they currently employ, this will give you an idea of their pedigree, i.e. a well run umbrella business that is well established and enjoys a large market share as opposed to a ‘fly-by-night’ provider looking to make a quick profit on the back of your hard work.

Finally, the majority of umbrella companies use online portals for their contractors to upload their timesheets, manage their details and check on the progress of payments and expenses. Ask to see a demo of their portal and make sure that submitting your timesheets will be as easy as they say it will! Make sure that the umbrella you choose to work with has the highest levels of security and treat your log-in information as you would your bank account.

You will probably take home more pay if you decide to do your own tax and NI if you set yourself up as your own Ltd company but there are some legal requirement as you would be a company director and it does take a bit of research. Advice from a specialist contractor accountant would be a good place to start.

PasturesNew

I'd rather go with an umbrella than set up a Ltd company. It's easier and means you can concentrate on just doing the job. However, I have some problems with umbrellas and being able to reclaim expenses because some rates are so low that by the time I've put the hotel/fuel bill and subsistence through as a claim, there's not enough left to be paid the minimum wage.

If I am earning £30/hour, then the numbers are OK. But there are an increasing number of "silly/low" rates put about that just don't work out right if you have to travel 200 miles each way and stay in hotels to do the job. e.g. try doing the maths at £10/hour, or £7 as I've seen.

I'd definitely go down the umbrella route though, for ease.

Hammyman

Agencies taking staff on under umbrella companies is a massive rip-off. They give you a higher rate which is in no way sufficient to compensate for the holiday pay and employers NI you'll have to pay. It also allows agencies to get off scot free with having to bother with little things like employment rights, SSP, holiday pay and them having to pay employers NI. In short, its a rip off. The only people who gain are the agency and the umbrella company who charge 5-10 times what it would cost if you did the books yourself and got an accountant to certify them.

SteProud

Hammyman wrote: »

Agencies taking staff on under umbrella companies is a massive rip-off. They give you a higher rate which is in no way sufficient to compensate for the holiday pay and employers NI you'll have to pay. It also allows agencies to get off scot free with having to bother with little things like employment rights, SSP, holiday pay and them having to pay employers NI. In short, its a rip off. The only people who gain are the agency and the umbrella company who charge 5-10 times what it would cost if you did the books yourself and got an accountant to certify them.

That is not strictly true. For example, the umbrella company i work for, Parasol, (am I allowed to say that here?) does pay holiday pay and SSP to our contractors.

Hammyman

SteProud wrote: »

That is not strictly true. For example, the umbrella company i work for, Parasol, (am I allowed to say that here?) does pay holiday pay and SSP to our contractors.

And where does that 12% of gross holiday pay magically appear from? I know the answer to this but I'll give you the opportunity tell them.