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?
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!
Umbrella fees can be claimed back as legitimate business expenses, and 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.
Make sure you know what the gross fees are of any suppliers you are interested in joining.
The umbrella market is extremely competitive, with most suppliers charging between £25 and £30 per week.
The cost of a monthly payment service does vary more widely, from around £80 to £120 per month.
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.