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How to choose the best umbrella company - 15 tips

Published on May 6, 2009 |

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As contracting has boomed in recent years, and ever since IR35 became law in 2000 (which makes umbrella companies more attractive for those caught by the rules), hundreds of umbrella companies have sprung up to serve the swelling numbers of contractors and freelancers in the UK.

In order to find a secure, well-run, and fairly priced umbrella scheme, you need to do your homework. We've compiled a list of things you should look out for before joining a scheme.

You might also be interested in our umbrella company directory.

15 Questions to ask

1) What is the fee structure? Does the umbrella charge a fixed weekly/monthly fee, or do they charge a percentage of your gross invoice value? Do they charge if you have time off? Make sure you are quoted the gross weekly or monthly fee, rather than the fee after higher rate tax relief, as this may not apply to you.

2) What is the payment frequency? If you submit your timesheet to your umbrella on schedule, how long before they guarantee payment will hit your bank account?

3) Does the umbrella offer insurance cover? You would typically expect to be covered for Professional Indemnity insurance, as well as employers and public liability cover.

4) How many contractor clients does the umbrella have, and how long has the company been operating? Has the company been assessed for compliance with tax legislation?

5) If the company claims to have a 'special' expenses dispensation, or says that you can claim for a wide range of unreceipted expenses - be very weary. You can only claim for expenses that have wholly incurred in the course of your contracting work. Read our popular article to expenses dispensations.

6) Slogans like 'HMRC approved' don't mean anything. HMRC doesn't 'approve' any company - this just means they have allowed the umbrella company to have a 'dispensation' to simplify the way expenses are accounted for.

7) 'IR35 compliant' is another seemingly impressive label some umbrella companies use. In reality, IR35 is irrelevant for umbrella company contractors, as you are taxed under normal PAYE conditions - as an 'employee'.

8) Are there any hidden costs, such as joining or leaving fees? There are plenty of umbrella companies who don't charge extra fees.

9) Will the umbrella pay you in full each week / month, or will they hold back any funds for 'contingency' reasons?

10) Your recruitment agency is likely to have a select number of umbrella companies as preferred suppliers. This doesn't mean you should sign up on the spot - you should still follow the tips in this guide, as there's no guarantee that these umbrella companies have been selected on an objective basis.

11) Some schemes offer a guaranteed level of customer service - another factor to consider. You need to feel secure and comfortable with your umbrella provider.

12) What type of web technology does the umbrella company employ? Ideally, you should be given access to a user-friendly, common sense system where you can input your timesheet details, check on the progress of expenses and salary payments, and submit questions or access online help.

13) Find out if the scheme offers a contributory pension scheme if this is something you require. Pensions remain one of the few remaining tax breaks available to contractors

14) You cannot beat a good personal recommendation. Ask contractor colleagues if they can recommend an umbrella scheme.

15) Remember that if you're not happy with your current provider, you can always move to a new one!

Further umbrella resources

Here are some more articles you might want to browse through before selecting the best umbrella for your needs.

- Guide to umbrella expenses.

- Umbrella companies and expenses dispensations.

- Joining a contractor umbrella scheme.

- What is an umbrella company?.

- How does a PAYE umbrella company work?

- Our growing list of umbrella companies.