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.
Many contractors are also being forced to use umbrella companies as a result of the April 2020 off-payroll legislation, as many large firms refuse to engage with personal service companies – for now, at least.
In order to find a secure, well-run, and fairly priced umbrella company, you need to do your homework. We’ve compiled a list of things you should look out for before joining a firm.
You can also find out more about some of the leading providers in our umbrella company directory.
Compare umbrella companies – 15 key questions to ask
1. 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? Do they offer BACS, CHAPS or Faster Payments transfers? These days, Faster Payments are pretty much the ‘norm’, which means same-day payments at no extra cost.
3. Does the umbrella provide insurance cover?
You would typically expect to be provided with Professional Indemnity insurance cover, as well as a employers and public liability policy, as most clients require contractors to be adequately insured before starting an assignment. In the case of PI insurance, make sure your specific skill/trade is covered, as less mainstream occupations may be excluded from a blanket policy.
4. Company History / Compliance
How many contractor clients does the umbrella have on board, and how long has the company been operating? Has the company been assessed for compliance with tax legislation? Only consider UK-based PAYE umbrella companies and steer clear of any scheme which offers wild rates of return, of anything ‘offshore’. All PAYE umbrella companies should offer the same net take home pay figures; the only difference being in the weekly/monthly fee they charge.
5. Expenses Dispensations
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 wary. You can only claim for expenses that have wholly incurred in the course of your contracting work. The rules vary also – depending on whether or not you’re under the ‘Supervision, Direction and Control (SDC)’ of your client. Read our popular guide to umbrella expenses.
6. Clever Marketing
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 Claims
‘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. Extra Costs
Are there any hidden costs, such as joining or leaving fees? There are plenty of umbrella companies that don’t charge extra fees.
9. Payment Schedule
Will the umbrella pay you in full each week/month, or will they hold back any funds for ‘contingency’ reasons? Will they make same-day payments via Faster Payments, or even charge for same-day payments (see above)?
10. Preferred Suppliers
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. Keeping Clients Happy
Some schemes offer a guaranteed level of customer service – another factor to consider. You need to feel secure and comfortable with your umbrella provider.
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.
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, despite the reduction in the tax-free pension contribution limits imposed in recent years.
You cannot beat a good personal recommendation. Ask contractor colleagues if they can recommend an umbrella scheme, and browse the web for other contractors’ umbrella company reviews and feedback.
15. Switching Providers
Remember that if you’re not happy with your current provider, you can always move to a new one!