Umbrella company margins – how much should you pay?

Umbrella companies play a vital role in the contracting industry by handling payroll, taxes, and other administrative tasks.

But how do umbrella companies charge for their services and what margins do they typically make?

This guide looks at how umbrella margins are calculated, payment structures, and other things you should look out for when comparing providers.

Payment Structure

Fixed fee (common)

The vast majority of UK umbrella companies charge contractors a fixed weekly or monthly margin for using their services.

Some umbrellas quote this margin net of tax, while others provide the gross fee, so comparing options can get confusing.

Percentage fee (rare)

A smaller number of umbrellas may charge a percentage of each invoice instead of a fixed fee. This was fairly common in the 2010s, but far less so now.

The percentage model is rare in the PAYE umbrella sector as it means the umbrella’s fee increases in line with the contractor’s invoiced income, even though their administrative work remains largely the same.

Contractors should typically avoid the percentage model.

There are plenty of good fixed-fee umbrella companies to choose from.

Gross vs. net margin – don’t be fooled!

The umbrella margin is deducted from your assignment rate, meaning that it is tax deductible.

In other words, if the margin is £25, this amount isn’t deducted from your take home pay.

It comes out of your assignment rate, so – after tax – it will only cost you £15 or thereabouts, depending on your tax code.

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

This can cause some confusion when you try to compare margins between providers.

A reputable umbrella will let you know what their regular weekly and monthly fees are – these gross margins should be displayed on their website. If an umbrella uses net fees in its marketing material, it might be time to move on with your search.

How much is a typical umbrella company margin?

The umbrella market is highly competitive, with most reputable providers charging between £25 and £30 per week in fixed fees.

Monthly fees vary more, but commonly range from £80 to £120.

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 – the margin.
  • 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.

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Last updated: 24th January 2024