What is an umbrella company

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What is an umbrella company? Contractor and Freelancer FAQs

Last updated on Tuesday, April 18, 2017

Written by Andrew Trodden

Contracting via umbrella company is widely considered as being the easiest method for contractors and freelancers to get paid. There is less of an administrative burden than operating through a limited company and getting paid is a quick and efficient process. We are regularly asked about umbrella company payroll by contract and freelance workers. Here are the answers to the most common queries, including ‘what is an umbrella company?’

An umbrella company is an organisation that legally becomes the employer of contract and freelance workers. By signing an overarching contract of employment with the workers client, the umbrella company will pay the worker PAYE and make all the necessary tax and National Insurance Contributions (NIC) to HMRC on their behalf. Umbrella companies are a very popular method of payroll provider for contractors and freelancers working through a recruitment agency because they can be used for any fixed term contract and the set up process is straightforward.

Using an umbrella company is the easiest way for contract workers to get paid. Registering is usually a quick and easy process, and providing you are using a reputable provider, there will be no joining or leaving fees.

The umbrella company will take care of a majority of the associated administration (including invoicing) and once you have successfully joined, you will only be responsible for uploading your signed timesheets to their online portal (if they have one) and sending a copy to your recruitment agency. Providing your umbrella company is compliant with HMRC legislation, your tax and National Insurance Contributions (NIC) will be paid on your behalf, meaning you will not have to worry about your tax affairs.

As an employee of an umbrella company, you will be entitled to Sick Pay, Maternity Pay, Paternity Pay and Annual Leave. Compliant UK based umbrella companies will also provide you with insurances. Churchill Knight Umbrella, for example, will provide you with a minimum of £10 million Employers Liability Insurance, £10 million Public Liability Insurance and £5 million Professional Indemnity Insurance. We want you to have complete peace of mind when using our services.

An umbrella company is a suitable payroll service for any contractor or freelancer. However, some workers are better suited to an umbrella than others. Ideal candidates are:

  • First time contractors and freelancers who are looking to get familiar with their new career.
  • Contractors and freelancers earning less than £15 per hour because when you start to earn more, it is more tax efficient to set up your own limited company.
  • Contractors and freelancers working in the public sector. This is due to the recent changes in off-payroll legislation in the public sector resulting in contractors no longer being able to determine their own IR35 status.
  • Contractors and freelancers who are working on lots of short term assignments.
  • Contractors and freelancers who are working on a one-off contract before returning to full time employment.
  • Contractors and freelancers who do not want to, or are unable to start their own limited company.

Unfortunately, legislative changes that came into effect in April 2016 resulted in a significant number of umbrella workers being no longer able to claim travel and subsistence expenses. A limited number of umbrella employees can still claim expenses if:

  • They are a genuine mobile worker by definition in accordance to HMRC.
  • They are not subject to supervision, direction or control (SDC).

Every compliant umbrella company in the United Kingdom will make the same deductions to your pay (including tax and NIC), except for their margins because these will vary between providers.

To find out how much you will take home with Churchill Knight Umbrella, try our umbrella company take home pay calculator.

If your questions about umbrella companies have not been answered above, have a look at the Churchill Knight Umbrella FAQs. We have answered over 40 of the most commonly asked questions about umbrella companies including concerns about claiming expenses, SDC (supervision, direction or control), personal tax returns and identifying whether or not you are genuinely a mobile worker in the eyes of HMRC.

If you would like more information about Churchill Knight Umbrella or are unsure whether to set up your own limited company or join a PAYE umbrella, please call 01707 871622.

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