Umbrella Company FAQs

Umbrellacompanies.org.uk has been created to help contractors and freelancers who are interested in using an umbrella company for their payroll. We appreciate it’s likely to be pretty daunting if you haven’t used an umbrella company before – but don’t worry, we’ve got your back! We’re sure these umbrella company FAQs will help.

We love to read about umbrella companies online! And, we have come across hundreds of questions asked by temporary workers about umbrella companies. Therefore, to do our part and to help out, we’ve collated a list of umbrella company FAQs that we hope you find useful.

If you have any questions that are not covered below – please email our team. We’d be delighted to add it to the list. After all – we’re here to help you make informed decisions about your payroll! Please email your questions to info@umbrellacompanies.org.uk.

About Umbrella Companies…

What is an umbrella company?

An umbrella company is a business that offers PAYE payroll services for temporary workers, and is a popular alternative to contracting through a limited company.

Read our Umbrella Companies Explained guide.

How do umbrella companies work?

When you join an umbrella company, you become an employee of theirs. The umbrella will receive your gross funds from your recruitment agency (or directly from your client) and will make the necessary tax and National Insurance Contributions to HMRC. They’ll then pay you your net salary.

Read our Umbrella Companies Explained guide.

Am I self-employed if I use an umbrella company?

When you join an umbrella company, you become an employee of theirs. You are technically not self-employed.

Read our Umbrella Companies Explained guide.

What deductions should be made to my pay when using an umbrella company?

Umbrella company employees will be given a payslip for each pay interval which will show the deductions that have been made to the gross salary. These are income tax, National Insurance Contributions (both Employer’s and Employee’s), the Apprenticeship Levy, and possibly pension contributions and student loan repayments (depending on your individual circumstances). The umbrella company’s margin will also be clearly stated on your payslip.

Read our Umbrella Companies Explained guide.

What are the advantages of using an umbrella company?

There are plenty of advantages available to contractors and freelancers who choose to use an umbrella company for their payroll, including:

  • Minimal administration and quick registration.
  • Tax and NICs paid to HMRC on your behalf – so you have nothing to worry about.
  • No tie in periods.
  • Easy to switch between limited and umbrella.
  • Free insurance cover.
  • Employee Benefits, including Sick Pay and Maternity/Paternity Pay.
  • Can be used for almost every contract role.
  • Continuity of employment

For more information on the advantages (and disadvantages) of using an umbrella company, please visit our Umbrella Companies Explained guide.

What are the disadvantages of using an umbrella company?

There are disadvantages umbrella company for their payroll, including:

  • Not as tax efficient as contracting through a limited company (when outside IR35).
  • Less freedom with your finances because the umbrella processes your tax, NICs, etc.
  • Almost impossible to claim expenses (apart from reimbursed expenses) since the introduction of Supervision, Direction and Control.
  • Tax planning is obsolete.
  • Having a limited company can help boost your credibility.
  • Employment costs can be seen as frustrating by umbrella contractors.

For more information on the disadvantages (and advantages) of using an umbrella company, please visit our Umbrella Companies Explained guide.

What is Same Day Faster Payments?

Many umbrella companies will offer Same Day Faster Payments. These are payments that’ll land in your account the same day they’re processed by the umbrella company. E.g. If an umbrella company processes your pay at 2:00pm using Same Day Faster Payments, you’ll receive your funds on the same day.

What are BACs payments?

BACs payments stands for Bankers Automated Clearing Service. This means a bank transfer from one bank account to another. Typically, BACs can take up to 3 – 5 days to clear, and are slower than Same Day Faster Payments.

What is PAYE?

PAYE stands for ‘Pay as You Earn’ and is an HMRC tax system in the UK for collecting income tax and National Insurance Contributions (NICs).

How do I submit timesheets when using an umbrella company?

How you submit timesheets will vary between umbrella companies but whatever the process – it should be straightforward and easy. Most commonly, you’ll be able to email your completed timesheets to a dedicated timesheet mailbox (e.g. timesheets@yourumbrellacompany.co.uk), or you’ll be able to submit them online via the umbrella company’s portal. Either way – you should have this explained to you upon registration and if you’re not clear how to do this – ask your provider.

What is a Key Information Document (KID)?

A Key Information Document will give you a realistic take home pay projection for working on an assignment. They are a legal requirement and will be issue to you by your recruitment agency, or end-client. They were introduced to increase transparency and to ensure contractors are not mislead about their pay retention.

How much does it cost to use an umbrella company?

The only income that compliant umbrella companies will generate for themselves is the margin they charge to process your payroll. Typically, umbrella company margins will vary between £15 and £35 per week. All other deductions that you’ll see on your payslip at paid to HMRC on your behalf.

What income do umbrella companies generate for themselves?

Compliant umbrella companies will take a margin each time they process your payroll. This margin will cover their administrative costs and the costs associated with running a business. The margin is the only income umbrella companies generate for themselves.

How will my income compare to contracting through a limited company?

If you are able to contract through a limited company (outside IR35), you’ll be able to take advantage of careful tax planning, and the opportunity to pay yourself with a combination of salary and dividends. Typically, you may be able to legally retain upwards of 80% of your pay (depending on individual circumstances – this is just a guidance figure). Contracting through an umbrella company is different because you’re subjected to PAYE. Therefore, your pay retention through an umbrella company will usually be lower than contracting through a limited company, and you should expect to retain roughly 55% to 70% of your pay (again, these are just guidance figures).

Why am I responsible for covering the employment costs when working through an umbrella company?

When you work through an umbrella company, you become their employee, but they do not benefit from any work you undertake – because you’re working for your end-client. Therefore, the employment costs (Employer’s National Insurance Contributions and the Apprenticeship Levy) are taken from the assignment rate. You must be aware of this when negotiating the rate of an assignment that requires you to use an umbrella company. The assignment rate should take the employment costs into consideration and an uplift should be implemented to ensure you’re not out of pocket. Employment costs are sent to HMRC directly and are not kept by the umbrella company.

Read our Umbrella Companies Explained guide.

Why am I responsible for covering the Employer’s National Insurance when working through an umbrella company?

When you work through an umbrella company, you become their employee, but they do not benefit from any work you undertake – because you’re working for your end-client. Therefore, the employment costs (Employer’s National Insurance Contributions and the Apprenticeship Levy) are taken from the assignment rate. It’s important that you’re aware of this when negotiating the rate of an assignment that requires you to use an umbrella company. The assignment rate should take the employment costs into consideration and an uplift should be implemented to ensure you’re not out of pocket. Employment costs are sent to HMRC directly and are not kept by the umbrella company.

Read our Umbrella Companies Explained guide.

Why am I responsible for covering the Apprenticeship Levy when working through an umbrella company?

When you work through an umbrella company, you become their employee, but they do not benefit from any work you undertake – because you’re working for your end-client. Therefore, the employment costs (Employer’s National Insurance Contributions and the Apprenticeship Levy) are taken from the assignment rate. It’s important that you’re aware of this when negotiating the rate of an assignment that requires you to use an umbrella company. The assignment rate should take the employment costs into consideration and an uplift should be implemented to ensure you’re not out of pocket. Employment costs are sent to HMRC directly and are not kept by the umbrella company.

Read our Umbrella Companies Explained guide.

What are employment costs?

The employment costs (in relation to contracting through an umbrella company) are the Employer’s National Insurance Contributions (NICs) and the Apprenticeship Levy.

What is the contract rate?

The contract rate is agreed rate of pay before any deductions are made.

What Employee Benefits are available to me when working through an umbrella company?

When you work through an umbrella company, you’ll be able to access Employee Benefits, including Sick Pay and Maternity/Paternity Pay.

Is insurance included when contracting through an umbrella company?

Most umbrella companies will include insurance cover as part of their service. Typically, the three most common types of insurance that are included is Employers Liability Insurance, Public Liability Insurance and Professional Indemnity Insurance.

If you’re working in a niche field such as driving (HGV) or construction (CIS) – some umbrella companies will include additional insurance cover that you may legally require. Ask your provider.

For more information, visit our Contractor Business Insurance page.

What is Employers' Liability Insurance?

Employer’s Liability insurance will protect you  if you’re injured or become ill when working on an assignment. Always read the policy you’re presented with in great detail.

For more information, visit our Contractor Business Insurance page.

What is Public Liability Insurance?

Public Liability Insurance will protect you when working near members of the general public. Typically, it covers you if you accidentally cause injury, loss or damage. Always read the policy you’re presented with in great detail.

For more information, visit our Contractor Business Insurance page.

What is Professional Indemnity Insurance?

Professional Indemnity Insurance will protect you in case your end client claims compensation for any negligence or mistakes on your part, which has resulted in your client suffering financial loss.

For more information, visit our Contractor Business Insurance page.

How does Holiday Pay work when using an umbrella company?

Holiday Pay should be taken into account when negotiating your assignment rate. Calculated at 12.07%, umbrella companies will show Holiday Pay on your payslip, but it will be a reallocation of your own funds. This means you are no better or worse off. Most umbrella companies will allow you the opportunity to accrue Holiday Pay (meaning 12.07% of your salary is put aside for a later date), or you can have it included in your pay each time they process your payroll.

How do pensions work when using an umbrella company?

As your employer, umbrella companies are legally required to enrol you into a pension scheme after 12 weeks. Most umbrella companies have their preferred pension partner and most commonly, this is NEST (the government’s pension plan). You will be required to make both the Employee’s Contribution (5%) and the Employer’s Contribution (3%). You can opt out of pension contributions.

How do I opt out of pension contributions?

If you would like to opt out of pension contributions, please speak with your umbrella company. They will advise you how you do this. Don’t worry – it should be straightforward.

Is it easy to switch between an umbrella company and contracting through a limited company?

Providing you are using an established and well-respected accountant and umbrella company – the answer is yes! It should be really easy for you to switch between contracting through an umbrella company and through a limited company. Many businesses offer both services (contractor accountancy and umbrella payroll), and as a result, they will ensure the whole process is efficient and cost-effective when you move between their services.

If you are a limited company contractor who requires an umbrella company at some point in the future, speak with your accountant and see if they a) have an umbrella company or recommendation and b) have a service that allows your limited company to remain active, but dormant (at a reduced rate).

Do I have to pay to join an umbrella company?

No – you should not have to pay to join an umbrella company.

Do I have to pay to leave an umbrella company?

No – you should not have to pay to leave an umbrella company.

How do I get an umbrella company take home pay calculation?

To get a tailored take home pay calculation from an umbrella company, we recommend you get in contact with a compliant umbrella company and ask them direct. Let them know your circumstances, rate of pay, hours per week, etc. and they’ll provide you with a take home pay calculation.

To make your life easier, why not complete the short form on our Get a Free Quote page? Once you complete the form, we’ll forward your information onto one of our top 10 umbrella companies and they’ll get back to you shortly. And, there is absolutely no obligation to use their service.

Why are different umbrella companies giving me a different rate of take-home pay?

Unfortunately, we have been made aware of some umbrella companies trying to mislead contractors into using their service. They’re deliberately inflating the take home pay projections they hand out to try and encourage contractors and freelancers to use their umbrella over others. How? They may be adding expenses to your take home pay calculation (even though it’s unlikely you’ll be able to claim them), using an incorrect tax code, not taking days off into account, and more. For more information, please read our Umbrella Companies Explained page.

Remember – the only thing that’ll vary between compliant umbrella companies is the margin they retain for you using their service. Every umbrella company will process your pay in exactly the same way (PAYE) and realistically, they should all be offering you a very similar take home pay projection. If an umbrella is offering you a considerably higher take home pay figure – be very wary.

Please also read our guide on Comparing Umbrella Companies because it may help you decide which provider is best for your upcoming assignments.

What is the typical registration process for joining an umbrella company?

Registering with an umbrella company is pretty straightforward, and the process can be completed in roughly 15 minutes. You’ll need to contact your preferred supplier and let them know you want to join. They’ll be able to sign you up over the phone, or they may have an online form you can complete instead (if you’d prefer).

You’ll need to provide the umbrella with personal information including your address, date of birth, national insurance number, bank details and more. These are a legal requirement and the umbrella will need this information in order to pay you. The umbrella will also need proof of your ID (most commonly, a copy/photo of your passport) and Visa (if applicable).

How do I leave an umbrella company?

Leaving an umbrella company should be an easy process. Contact your umbrella company and let them know you’re planning on leaving. They’ll let you know what you need to do – but there shouldn’t be much. Once you’ve left, the umbrella company will send you your P45.

Why is my agency only letting me use a few umbrella companies?

Responsible recruitment agencies will have a preferred supplier list (PSL) with a selection of compliant umbrella companies on it. If you are not happy using any of the providers on the list you’re given, speak with your agency. Always carry out your own due diligence when selecting an umbrella company and always make sure you use a compliant provider.

About Compliance…

How do I know if an umbrella company is compliant?

It is imperative that you only use compliant umbrella companies for your payroll. Firstly, make sure the take home pay projection you get from an umbrella company is realistic. If they’re offering you an alarmingly high pay retention – they could be a tax avoidance scheme.

Secondly, check and see if the umbrella company is accredited by a professional body, such as the FCSA. To achieve FCSA accreditation, umbrella companies must pass a series of assessments and audits. And, they must be able to prove they operate in accordance with the FCSA’s strict codes of compliance.

Please read our guide create to help you compare umbrella companies.

Why should I use a compliant umbrella company?

Compliant umbrella companies will ensure you pay the correct, legal amounts of tax and National Insurance Contributions (NICs). This means you’ll be operating in accordance with UK tax law and HMRC will be completely satisfied with your tax affairs.

If you engage with a tax avoidance scheme (a company that may potentially offer you inflated take home pay calculations and the opportunity to “pay less tax”), you could be subjected to an HMRC investigation. HMRC is always increasing their efforts to catch tax-avoiding contractors, and you could be retrospectively punished years down the line (read about the Loan Charge).

We cannot stress this enough – only use a compliant umbrella company.

What is a tax avoidance scheme?

A tax avoidance scheme is a business that will encourage you to pay less than your fair share of tax. Unfortunately, there are plenty out there who are unethically enticing contractors and freelancers to use their services, rather than the services of a compliant and trustworthy umbrella company.

Tax avoidance schemes will operate loopholes that’ll allow you to retain more of your fair-share of pay. Examples include disguised remuneration schemes (such as companies offering to “loan” you your salary with no need to pay it back) and offshore schemes (which try to bypass UK tax law).

We cannot stress this enough – do not use a tax avoidance scheme.

How do I identify a tax avoidance scheme?

There are lots of warning signs to look out for when identifying whether an umbrella company or payroll provider is a tax avoidance scheme. Typically, a tax avoidance scheme will:

  • Offer you a noticeably higher rate of pay compared with compliant umbrella companies.
  • Be located away from the UK in a known tax haven, such as Jersey or the Cayman Islands.
  • Promote themselves as “compliant with HMRC” – phrases that sound a little questionable.
  • Be difficult to contact by phone.
  • Not have been around for long and will not have a proven track record.
  • Not hold a respected accreditation, such as the FCSA.
  • Use phrases such as “pay less tax” – which instantly sounds dodgy.

We cannot stress this enough – do not use a tax avoidance scheme.

What happens if I use a tax avoidance scheme?

If you use a tax avoidance scheme, you could face an HMRC tax investigation in the future. As a result, you may be heavily penalised and required to pay back huge sums.

HMRC is encouraging people to contact them now if they believe they’ve used a tax avoidance scheme in the past (whether deliberately or by accident). More information is available on the government’s website.

How much of my money should I expect to retain through a compliant umbrella company?

This is just a guidance figure, but you should expect to retain between 55% and 70% of your pay. This will vary depending on your circumstances.

We recommend you contact a compliant umbrella company and ask them for a tailored take home pay projection. Did you know you can Get a Free Quote or Request a Call Back from a top 10 umbrella company via the Umbrella Companies website?

A company is offering me 90% take home pay – should I use them over umbrella companies offering me far less?

A company offering you 90% (or close) is almost certainly a tax avoidance scheme. Do not be tempted to use a tax avoidance scheme. If an offer sounds too good to be true – it probably is.

We cannot stress this enough – only use a compliant umbrella company.

Should I carry out my own due diligence when choosing an umbrella company?

Yes – 100%.

We’re here to encourage you to use a compliant umbrella company for your payroll, but you must conduct your own due diligence because the umbrella you choose is entirely your own decision.

What is IR35?

IR35 is legislation that was introduced in 2000 to stop disguised employees from underpaying tax. The government found that limited company contractors were taking advantage of tax savings when they were actually working in the same way as permanent employees.

What is off-payroll legislation?

IR35 is often referred to as “off-payroll legislation”. There have been some recent amendments that are worth noting.

Changes to off-payroll in the public sector came into effect in April 2017. To summarise the changes – public sector limited company contractors are no longer able to determine their own IR35 statuses. Instead, this has become the responsibly of the end-client (public sector organisation).

Similar changes are rolling out into the private sector in April 2021 (changes to off-payroll in the private sector). From April 2021, private sector contractors will no longer be able to determine their own IR35 statuses. Instead, this will become the responsibly of private sector organisations engaging with limited company contractors.

What expenses can I claim through an umbrella company?

Not many – if any at all!

Frustratingly, changes in April 2016 meant that umbrella contractors were only able to claim tax relief on travel and subsistence expenses if they were not subject to supervision, direction or control (SDC). After some time passed – it became apparent that almost every contractor is subject to SDC, and therefore, not entitled to tax relief on travel and subsistence expenses. In fact, most umbrella companies do not allow expenses at all – unless they’re genuine reimbursed expenses.

Please read our guide to Umbrella Company Expenses for more information.

What is supervision, direction and control (SDC)?

Supervision, direction and control (SDC) are terms used to identify whether or not umbrella contractors are entitled to claim tax relief on expenses. To summarise, if a contractor is supervised in their role, given direction from another member of staff, or are controlled by another member of staff, they’re not entitled to claim tax relief on expenses. Why? Because the government considers roles within SDC to be similar to permanent employment and if permanent employees cannot benefit from the same tax relief – they deemed it unfair that umbrella contractors could.

Please read our guide to Umbrella Company Expenses for more information.

What personal information do I need to provide an umbrella company when joining?

When you join a compliant umbrella company, you’ll be required to provide them with a series of personal information for them to be legally able to pay you. This includes your address, date of birth, bank information, national insurance number, assignment details, and more. You’ll also be required to provide the umbrella company with proof of your identity (usually by sending a copy/photo of your passport) and your right to work in the UK (if applicable).

Who is the FCSA?

The FCSA is the UK’s most recognised industry body dedicated to ensuring the supply chain of temporary workers is ethical and compliant with HMRC rules and regulations. To achieve FCSA accreditation, accountants and umbrella companies must undergo a series of assessments and audits from independent professionals, and they must be able to provide they operate in accordance with the strict FCSA codes of compliance.

Here at Umbrella Companies, we only endorse FCSA accredited accountants and payroll providers because we are also committed to promoting the word COMPLIANCE.

If you see a business being promoted or advertised on our website that you believe doesn’t hold FCSA accreditation – please email info@umbrellacompanies.org.uk at your earliest convenience.

What does FCSA stand for?

Who is allowed to advertise on the Umbrella Companies website?

We only allow FCSA accredited umbrella companies and contractor accountants to appear on the Umbrella Companies website. If you see a business being promoted or advertised on our website that you believe doesn’t hold FCSA accreditation – please email info@umbrellacompanies.org.uk at your earliest convenience.

We also have some directories consisting of businesses offering valuable services to contractors and freelancers. You must conduct your own due diligence when deciding which organisations to engage with. Please read our disclaimer.

I’ve found a company featured on the Umbrella Companies website that isn’t FCSA accredited – what should I do?

If you see a business being promoted or advertised on our website that you believe doesn’t hold FCSA accreditation (contractor accountant or PAYE umbrella) – please email info@umbrellacompanies.org.uk at your earliest convenience. The same applies if you see a business on one of our directories that you believe doesn’t have contractors and freelancers best interests’ at heart. Let us know, and we’ll look into it quickly.

We hope you’ve found our umbrella company FAQs helpful.

If you still have unanswered questions, we recommend you contact one of the top 10 umbrella companies. And, if it’s not too much hassle – please email the question(s) you want answering to info@umbrellacompanies.org.uk and we’ll add it to our umbrella company FAQs!

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