Before you sign up with an umbrella company, you will probably have a couple of questions you would like answering. Whilst using an umbrella company is the easiest way to get paid when undertaking contract work, there are still numerous processes and important pieces of information you must understand before making a commitment to a service provider.
The FAQs below have been designed to answer a variety of questions about umbrella companies. If you are looking for a reliable umbrella provider, please contact Churchill Knight Umbrella for an industry leading and fully compliant PAYE payroll service for contractors and freelancers.
An umbrella company is a PAYE payroll service for contractors and freelancers. The contractor/freelancer will become an employee of the umbrella company and will be paid by them, minus deductions including tax and National Insurance Contributions (NIC). Using an umbrella company is widely accepted as being the easiest way to get paid as a contractor or freelancer. For more information on how umbrella companies work, please click here.
An umbrella company will officially become your employer once you have completed their registration process, usually consisting of a detailed application form and identity check. Once registration is complete, you will become an employee of the umbrella company and receive your salary from them by PAYE. The appropriate deductions, including tax and National Insurance Contributions (NIC) will be made on your behalf. As an employee, you will be eligible for employee benefits including Sick Pay and Annual Leave.
Your umbrella company will sign a contract with your recruitment agency. Your client will pay your recruitment agency their agreed rate, the recruitment agency will then pay the umbrella company, and finally, the umbrella company will pay you your wages (minus deductions).
No. Whilst you are contracting through an umbrella company, you will become their employee and will have access to employee benefits including Sick Pay.
A majority of umbrella companies will pay you by electronic bank transfer (BACS). Churchill Knight Umbrella on the other hand will pay you with Same Day Faster Payments.
As a contractor working through an umbrella company, you will be paid in accordance to the schedule you have agreed with your recruitment agency.
Umbrella companies are designed to accommodate contract workers who do not want to set up their own limited company or be responsible for the associated administration of being self-employed. The umbrella company will become your employer and you will receive PAYE. There are plenty of benefits available to contractors and freelancer who choose to use an umbrella company.
Any contractor or freelancer can use an umbrella company as their payroll provider. However, umbrella companies are typically a perfect service for:
Changes to off-payroll legislation (IR35) in the public sector came into effect in April 2017. As a result, public sector contractors were no longer able to determine their own IR35 status. Instead, it became the responsibility of their end client. These changes will be rolling out into the private sector in April 2021. As a result, there has been an increase in limited company contractors needing to use umbrella companies. If you believe you may need to switch to an umbrella company for an upcoming assignment, please contact us. The process is far easier than you may imagine and you’ll be free to switch back to your limited company as soon as you can.
There is usually no joining fee when signing up to an umbrella company. Have a look for an umbrella company that is fully compliant with HMRC legislation and that does not charge a joining fee.
Like all businesses, umbrella companies have overheads. Therefore, to make their money, they charge a small margin in exchange for their payroll service. A majority of umbrella companies will deduct a fixed margin each time you are paid by them (weekly or monthly). However, some umbrella companies choose to take a percentage of a clients income instead.
The cost of using an umbrella company (margin) will vary between providers, but you should typically expect to pay between £25 – £35 per week and £110 – £140 per month.
Umbrella clients are paid in a similar way to permanent employees (PAYE). As a result, your umbrella company will deduct tax and Employee National Insurance Contributions from your pay. These will be sent to HMRC. As an umbrella employee, you’ll also be responsible for employment costs, including the Apprenticeship Levy and Employer’s National Insurance Contributions.
Additional deductions that you will see on your payslip will include Holiday Pay (which is simply a reallocation of your own pay, so you are no worse or better off), student loan repayments (if applicable) and pension contributions (if you choose to remain in our chosen pension plan).
For more information on the deductions you’ll see on your payslip, please visit our blog: Umbrella company take home pay: what should you retain?
Despite providing the same day rate to different umbrella companies you may have received illustrations which give you different take home pay amounts. Don’t be fooled by higher take home pay projections as some providers may adjust the number of working weeks used in the calculation, include expenses or use a tax code that gives you a greater tax-free allowance, so you take home pay seems higher.
Please be aware that the only difference between compliant umbrella companies is the weekly or monthly margin.
Before you register with an umbrella company, they will provide you with an illustration to give you an idea of what your take home pay will be each week or month. While these illustrations are as accurate as possible, we are unable to give you exact figures as we do not receive important information such as your tax code or previous earnings until after you register.
Pay As You Earn (PAYE) is a process used by employers when paying their employees’ wages. The employer will make the correct deductions to the employees’ pay, including tax and National Insurance Contributions (NICs), then pay the employee, usually by a BACS bank transfer.
A system of sending payments from one bank account to another. Typically, a BACS transfer will be set up as a direct debit and each payment will take an estimated 3 days to clear.
Every compliant UK based umbrella company will make the same deductions to your pay, except for their margin (the only thing that will vary amongst compliant providers).
To get a tailored umbrella take home pay calculation, contact a compliant umbrella provider and ask for a personalised projection.
A contractor calculator is a tool designed to provide contractors with an accurate take home pay figure representing what they will earn when using a specific payroll service (e.g. a limited company or an umbrella company). The take home pay figure will exclude the appropriate tax, National Insurance Contributions (NICs) and service related costs. Click here for a contractor limited company take home pay calculator. Click here for a contractor umbrella take home pay calculator.
Setting up and working through your own limited company (often referred to as a personal service company) is the most tax efficient way to operate as a self-employed worker, but your ability to do this depends on whether you are inside or outside IR35 legislation. If you are outside IR35, you will be able to legally maximise your take home pay and reduce your tax burden compared to an umbrella company (by paying yourself with a combination of salary and dividends.
However, with recent changes to legislation (off-payroll in the public and private sector), a number of limited company contractors are now required to use PAYE umbrella companies for their payroll.
Umbrella companies are perfectly compliant with HMRC and are a popular payroll method for tens-of-thousands of contractors in the UK.
However, it is really important that you choose a compliant umbrella company for your payroll, such as an umbrella company that has obtained the prestigious FCSA accreditation.
Unfortunately there are non-compliant umbrella companies out there and they are targeting vulnerable contractors and freelancers. These umbrellas will offer you a host of unrealistic benefits such as an alarmingly high pay retention, but they’re actually tax avoidance schemes that could land you in serious trouble. You can find out more about tax avoidance schemes and how to identify them by visiting our page: How to spot a tax avoidance scheme.
Whichever umbrella company you choose, make sure they’re accredited by a well-respected industry body such as the FCSA. This way, you can be sure they’re compliant and follow all HMRC rules and regulations.
The FCSA is the UK’s leading professional body and they are committed to ensuring the supply chain of temporary workers is compliant and ethical.
Yes.
Churchill Knight and all our associated companies are FCSA accredited.
A great way to identify whether an umbrella company is compliant or not is to see if they are accredited. To obtain an accreditation such as FCSA, umbrella companies have to undergo a rigorous audit to prove they operate compliantly with HMRC rules and regulations, meaning you’ll be in the safest hands.
Churchill Knight is proudly accredited by the FCSA and we believe there is no better way to showcase our commitment to compliance.
When you join an umbrella company, you will need you to complete a registration form. This is usually a one off process that will require you to provide them with the following information:
When you use an umbrella company, your administrative responsibilities are kept to a minimum. Once the registration process is complete and you have signed a contract with the umbrella company, you will be required to submit your signed timesheets and allowable expense claims. Churchill Knight Umbrella make this easy for our clients. All they need to do is email their completed and signed timesheets to timesheets@churchill-knight.co.uk.
Submitting your timesheets to an umbrella company usually takes no longer than a couple of minutes. All Churchill Knight Umbrella clients are required to email their signed timesheets to timesheets@churchill-knight.co.uk. It is important that this is done as soon as possible to ensure payments are made on time. Once you have registered with us, we can provide you with a timesheet template (Excel) – if you would find it useful.
The assignment rate is the rate charged by the umbrella company to the end client or recruitment agency. Employment costs (Employers’ NI, the Apprenticeship Levy, Holiday Pay and Pension contributions if applicable) are factored into your assignment rate.
It is important to understand that the assignment rate and your pay rate are different and the employment costs are not being taken from your pay rate.
Once the employment costs and the umbrella margin have been deducted from your assignment rate, you are left with your gross pay rate which PAYE tax and Employee National Insurance Contributions are deducted from. The gross pay rate is the pay rate you agreed to when you started the contract.
When you use an umbrella company to process your payroll, you become their employee. In this arrangement, the employer (your umbrella company) doesn’t benefit from the work you do, as you are working for a different organisation (your end client).
Umbrella companies are not in a position to cover the Employers’ NI alongside other employment costs, as they only retain a small margin for processing your payroll and do not benefit from any of the work completed by you.
Many recruitment agencies will factor these additional costs into the assignment rate and you will receive an uplift when working through an umbrella company – to account for the employment costs.
The Apprenticeship Levy is a government scheme to fund apprenticeships and apprenticeship training in the UK. Every business in the UK with an annual payroll of £3 million or more is required to contribute to the levy.
The Apprenticeship Levy like other employment costs will be taken from your assignment rate and should equal 0.5% of your gross pay.
When you work through an umbrella company you are entitled to the same benefits as those who are in full-time employment. You are entitled to Holiday Pay, Sick Pay, Maternity Pay and Paternity Pay.
Holiday Pay is calculated at 12.07% of your own pay and it is reallocated to you on your payslip, meaning you are no better or worse of. However, it’s important you remember this when negotiating your next rate – because you’ll want to ensure it’s enough to allow you the Holiday Pay you desire. Keep reading our FAQs for more specific information on Holiday Pay.
Most umbrella companies will usually work out Holiday Pay at 12.07% of your gross taxable pay and it is taken from the contract rate your umbrella company receives from your recruitment agency or end client.
You can choose to have your Holiday Pay paid to you in one of two ways: accrued or advanced. If your Holiday Pay is advanced it will be paid alongside your weekly or monthly salary. Alternatively, you can opt to have it accrued and it will be paid into a pot which you can choose to draw from at any time.
As an employee of an umbrella company, you are entitled to Statutory Annual Leave, which is equal to 5.6 weeks per year. This is equivalent of 12.07 percent of the hours you have worked. Please be aware that your Holiday Pay is simply a reallocation of your own funds and will not be paid to you on top of your agreed rate.
More information on Holiday Pay for umbrella company contractors is available in our blog: Understanding Umbrella Company Holiday Pay.
Most umbrella companies will ensure their employees are protected with Employers’ Liability Insurance, Public Liability Insurance and Professional Indemnity Insurance. These should be included in your contract with the umbrella company and not cost you anything extra.
Employers’ Liability Insurance will protect your umbrella company against compensation claims made by their contractors in regards to illness or injury obtained in their place of work. It is a legal requirement.
Public Liability Insurance will protect us against claims from the public if you have caused a personal injury or damage to property when working.
Professional Indemnity Insurance will protect us if somebody claims you have not provided the appropriate level of service as agreed. This can include what is perceived as poor quality work and inaccurate advice.
Umbrella companies are legally required to automatically enrol you into their chosen pension scheme after three months. However, you are perfectly entitled to opt out as soon as you’re enrolled. And, providing you opt out as soon as you can, you should be able to reclaim your first contribution. Speak to your umbrella company for more information.
It is a legal requirement for umbrella companies to enrol their new workers into a workplace pension scheme after 12 weeks of employment. But don’t worry, if you do not want to use their scheme, or you have an existing pension pot in place, you can choose to opt-out. The information you need to do this will be provided as soon as your registration is complete.
Unfortunately, from 6 April 2016, HMRC confirmed that contractors working through umbrella companies were no longer able to claim tax relief on travel and subsistence expenses if they were subject to supervision, direction or control. In the eyes of HMRC, this was done to level the playing field and make things fair between full time employees and contractors (because full time employees are unable to claim travel and subsistence expenses).
Some umbrella companies will allow you to claim expenses if you are not subjected to supervision, direction or control. Churchill Knight is not offering expenses as part of our service.
For the minority of contractors that are legally able to claim travel expenses, these include:
If you are claiming travel expenses, it is likely you will have an agreed amount with your client. HMRC has set benchmarks for travelling in your own vehicle. If you are claiming for travel on public transport, check with your employer if there is a limit to your claims.
Subsistence expenses include the expenses that arise when on a business trip. These include:
If you are claiming subsistence expenses, it is likely you will have an agreed limit with your client. HMRC has set benchmark rates, designed for employers.
HMRC believe a majority of contractors are under supervision, direction or control (SDC) in their place of work. Established umbrella providers will have an easy to answer SDC questionnaire (created with assistance from an industry body such as Professional Passport), designed for contractors to determine their SDC status. Make sure you ask your umbrella company for assistance when determining your SDC status.
HMRC has decided that if a contractor is subject to supervision, direction or control, they are not eligible to claim tax relief on travel and subsistence expenses.
Supervision – when you are being overlooked at your place of work to make sure you are carrying out your tasks in accordance to your contract. If you are receiving assistance, advice or help from anyone in your place of work, this can also count as supervision.
Direction – when you are being given clear instructions, guidance or assistance on how to carry out your tasks.
Control – when you are directly being dictated to in the workplace and you must do as asked in order to correctly carry out your assignment. If you are asked to move from location to location (whether inside an office or externally), you are under control.
To find out more, please visit the HMRC website for their official definitions.
Regardless of your supervision, direction or control status, if you are required to travel to irregular temporary locations during your assignment, you are a mobile worker. You can claim travel expenses for your journeys between the worksites, whether driving your own vehicle or using public transport.
You must keep all receipts that you are claiming expenses for.
Most umbrella companies will have their own online portal that you can use to upload your receipts for eligible expenses. For umbrella companies that do not have their own online portal, you will be required to email them a copy of your receipts, or send them by post. If you are required to send them by post, make sure you keep a copy.
Some umbrella companies may charge you a fee if you are looking to leave their service. Have a look for an umbrella company that is fully compliant with HMRC legislation and that does not charge a leaving fee.
If you have decided you want to start your own limited company, it is a good idea to get in contact with an accountancy provider that specialises in contractor services. For a monthly fee, a contractor accountancy provider will be able to help you with all the administration involved in setting up and running your own limited company.
Switching umbrella companies is an easy process, provided both parties involved are compliant with HMRC legislation and are run ethically. You should alert your current provider about your desire to leave their services and let them know the details of the new umbrella company you will be using. Once you have expressed you want to join the new umbrella, they will make contact with the old provider and the two parties will take care of a majority of the administration involved in the switchover.
You will be required to sign up with the new provider and complete a registration form, as well as providing them with proof of your identity and address.
Using an umbrella company is the easiest way to get paid as a contractor and the administrative burden is kept to a minimum. However, an umbrella company is not the most tax efficient way to work as self-employed, and setting up a limited company will increase your take home pay.
Make sure you carry out some thorough research when deciding whether or not to use an umbrella company. It is also a good idea to read some contractor forums and speak with your recruitment agency who will be able to provide you with support.
You can use an umbrella company and have a limited company at the same time. Whilst you are using an umbrella company, your limited company will become dormant and no payments can be put through it for the same assignment.
You should never consider using an offshore intermediary when working in the United Kingdom. HMRC is hunting for contractors who are using offshore intermediaries to reduce their tax burden. Promoters of offshore intermediaries are also being chased.
If you are caught by HMRC, you will be required to pay back the tax you are perceived to owe, as well as a potentially huge fine.
No – they are not legitimate.
If you see a company offering you the chance to take home 90 percent of your pay, alarm bells should already be ringing. As explained in the question above, HMRC is continuously looking to catch contractors that are using offshore intermediaries to lower their tax burden. You could be required to pay back all of the tax you owe, as well as pay significant fines.
When choosing an umbrella company, you must ensure the provider you go with is compliant with HMRC. The best way to do this is to choose an umbrella company that is accredited by the FCSA – the UK’s leading professional body that is committed to ensuring the supply chain of temporary workers (including contractor accountants and umbrella companies) is compliant and ethical.
For more information, visit our page: How to spot a tax avoidance scheme.
Usually, contractors using an umbrella company do not need to submit a personal tax return to HMRC because they receive PAYE and the tax and National Insurance Contributions (NICs) have already been made and recorded by your umbrella provider. However, you will be required to submit a tax return if you have an income of over £100,000, you have additional income (for example, from a rental property or investment) and if HMRC has personally requested you to do so.
If your question not covered in our Umbrella FAQs – don’t worry! Please give us a call on 01707 871622, or complete the short form below.
Churchill Knight & Associates Ltd and Churchill Knight Umbrella are proudly accredited by the Freelancer and Contractor Services Association (FCSA). The FCSA is the UK’s leading professional body dedicated to ensuring the supply chain of temporary workers is compliant with HMRC’s rules and regulations. We believe that being an accredited member of the FCSA is the best way to showcase our commitment to compliance within our sector.
Whether you’re using one of our limited company accountancy packages (Churchill Knight & Associates Ltd) or you’re an umbrella company employee (Churchill Knight Umbrella), you can rest assured knowing that you are in the very safest hands.
