Umbrella company margins – how much are you paying?

Price is a key factor when choosing an umbrella company. How do umbrella schemes charge for their services? and are there any things you should look out for when comparing the fees charged by different umbrella companies?

Payment Structure

Umbrella companies charge contractors in two main ways:

1. Fixed margin – the vast majority of schemes charge contractors a fixed weekly or monthly fee for using their services.

2. Percentage – a smaller number of companies charge a percentage of your invoice value. You could end up paying a small fortune under this model unless the fees are capped at a reasonable level. The company doesn’t need to do any more work for you if you are invoicing £1,000 or £10,000 a month! Thankfully, this type of pricing is very unusual in the PAYE umbrella space these days (2022).

Margin Breakdown

Umbrella fees can be claimed back as a legitimate business expense; therefore you won’t pay any tax on the amount of fees you pay.

As a result, some umbrella companies quote their weekly or monthly fees net of tax, rather than gross of tax.

This can cause some confusion when trying to compare fees between suppliers.

You may be asked to fill in a ‘simple online calculator’ or form to get a ‘quote’. This is simply a marketing method to gain your contact details and entice you in.

And when you receive a quote, the umbrella will often make assumptions about expenses claims, holiday pay, and other variables, to provide a more favourable net take home pay calculation than is actually the case in reality.

Make sure you know what the gross fees are of any suppliers you are interested in joining.

Typical Margin

The umbrella market is extremely competitive, with most suppliers charging between £25 and £30 per week.

The cost of a monthly payment service appears to vary more widely, from around £80 to £120 per month.

Other Considerations

  • No PAYE umbrella company can legitimately save you tax, via expense reclaims or other methods. The only savings you can make by switching providers is in the costs of using the service itself.
  • Price is just one of several factors you should look at when choosing an umbrella company.
  • Other factors, such as quality of service, the background of the company itself, and any personal recommendations you have received from other contractors are also important.
  • Read our tips on how to compare umbrella companies for more ideas.

About the Editor

  • James Leckie

    James is an experienced business and finance writer. He studied economics and worked for large companies including British Airways, Citi and JP Morgan before working as a data analyst IT contractor in the late 1990s and 2000s. He founded Contract Eye in 2006 and also writes widely for a number of popular business sites. Connect with James on LinkedIn.

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Last updated: 9th April 2022