The Umbrella Company Checklist For Contractors Inside IR35

If you take on an assignment inside IR35, you may decide that you’re better off using an umbrella company for your payroll. After all, if you’re a limited company contractor– you won’t be able to pay yourself with a combination of dividends and salary because the fee-payer will make deductions (tax, National Insurance, etc.). However, it’s not all doom and gloom. Changes to off-payroll in the private sector (IR35) are coming in April end-hirers will be responsible for determining the IR35 statuses of their temporary workforce. We’ve created an umbrella company checklist for contractors inside IR35, and it may come in handy.

Check your end-client has made a correct IR35 assessment

If you’re contracting in the public sector, your end-client will have determined your IR35 status. If you’re contracting in the private sector, IR35 assessments will become the end-hirers responsibility in April 2021 (off-payroll in the private sector). And if your current private sector assignment runs past the 6th April 2021, your end-client should already have issued you with a Status Determination Statement (SDS).

An SDS is a formal document that end-hirers are required to issue each temporary worker with. It should explain whether their role is inside or outside IR35, and explain why they have come to this decision. HMRC has confirmed private sector organisations must take “reasonable care” when conducting status examinations.

If you disagree with an IR35 assessment made by your client, you’re well within your right to appeal, and they will have 45 days to get back to you.

Assess your limited company options

Just because you find yourself inside IR35 for an assignment, it doesn’t mean your limited company is obsolete. You are free to return to it for contracts outside IR35 whenever you want. Therefore, speak with your contractor accountant (if you have one) and see how they can support you after April 2021 – the month that changes to off-payroll in the private sector are set to roll out. 

Further down our checklist, we explain more about how umbrella companies work. However, before you read on, we would like to make you aware of the possibility of frequently switching between inside and outside IR35 roles. In theory, providing your accountant is useful and you choose an ethical umbrella company – you should be able to do this in a very efficient and cost-effective manner. And, your existing accountant may even be able to provide in-house umbrella payroll. Sure, we’re just brainstorming here – but work with us!

Understand how umbrella companies work

Before you decide whether or not to use one, it’s important you understand precisely how umbrella companies work. To put it simply, when you use an umbrella, you become their employee and they’ll process your payroll (PAYE) and pay you your salary (after deductions). Umbrella companies operate PAYE – meaning they’re compliant with HMRC. As an umbrella company employee, you’ll be subjected to Employment Costs as well (the Apprenticeship Levy and Employer’s National Insurance). These deductions should be taken into account when you negotiate your assignment rate.

Every compliant umbrella company will process your payroll identically and the only thing that varies between providers is the margin they deduct for their service. Usually, umbrella company margins vary between £15 and £25 per week. Remember, margins are the only thing that should alter your take home pay from one umbrella company to another.

Umbrellas will usually offer more than just PAYE payroll – to increase the value you get from their service. Most will include free insurance, Same Day Faster Payments, account management, and more. You can discover more by reading our page: Best Umbrella Companies.

And going back to a point we made earlier, you should be able to join and leave an umbrella company as often as you like – without incurring any costs. Check with the umbrella you’re interested in using before you register to ensure they’re accommodating. Compliant umbrella companies are a good choice for contractors inside IR35.

Check out our guide: Umbrella company example. It explains a hypothetical scenario to show how the supply chain works, and how contractors are paid through an umbrella company.

Get an umbrella company calculation

To get an idea of your take home pay through an umbrella company, it’s a good idea to get a tailored take home pay projection. By running through your circumstances (rate of pay, hours per week, payment frequency, whether or not you pay a student loan, etc.), umbrella companies can present you with a good indication of what you should expect to retain each time they pay you.

By completing a short form on our website, you can request a free and tailored take home pay calculation from one of our top 10 umbrella companies. Request a free umbrella company quote here.

Only engage with compliant umbrella companies

You must choose a compliant umbrella company, because unfortunately, there are unethical tax avoidance schemes (such as ‘mini umbrella companies’) targeting honest contractors. If you are found to have used a tax avoidances scheme, even by mistake, HMRC could issue you with life-changing penalties. It’s not worth the risk.

We do our best to only feature FCSA accredited umbrella companies on our website. The FCSA (Freelancer and Contractor Services Association) is a leading professional body committed to ensuring the supply chain of temporary workers is compliant and ethical. For an umbrella to obtain the prestigious FCAS accreditation, they must undergo a series of assessments and audits to ensure their internal procedures are compliant with HMRC rules and regulations.

Contractor accountants can also achieve FCSA accreditation. Therefore, if you’re currently using an accountant to help you with your personal service company, it’s worth assessing the marketplace and consider moving to an FCSA accredited accountant – if yours doesn’t have the accreditation.

Pick a top 10 umbrella company

If like many contractors inside IR35 you decide you want to use an umbrella company, we recommend you check out our top 10 umbrella companies. Each one is accredited by the FCSA, and some of them have some wonderful offers on at the moment.

Click here to see our top 10 umbrella companies!

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