Frequently Asked Questions
From payroll to your data, explore our curated frequently asked questions below.
From payroll to your data, explore our curated frequently asked questions below.
An umbrella company is a PAYE payroll administration company that acts as the employer for contractors who work on an assignment basis. The umbrella company deals with all the administration regarding your payment.
This includes invoicing the client and/or agency for payment and calculating the relevant tax and National Insurance contributions of the contractor. The contractor will be paid in weekly or monthly instalments as agreed with their umbrella company & Agency/Client. All the contractor must do is submit their timesheets to the umbrella company on time.
The umbrella company takes care of all the legal requirements of an employer. As an employee of an umbrella company, you are entitled to Statutory Sick Pay, Statutory Maternity Pay, Holiday Pay and a State Pension.
The umbrella company acts as the employer, providing a continuous work history which is great for mortgage and loan applications, as well as providing references.
There are many benefits to using an umbrella company over other payroll alternatives.
As an employee, you have full entitlement to state benefits like Statutory Sick Pay, Statutory Maternity Pay and a State Pension. The umbrella company acts as your employer and so can provide a continuous record of employment which can assist with loan and mortgage applications.
As the director of a limited company, you would have to handle all your administration regarding your payment and ensure that you are compliant with all the associated rules and regulations. You would have to file your tax returns and ensure your tax contributions are paid on time. Joining an umbrella company saves you the trouble as you become a PAYE employee.
If you are new to contracting, you can work under an umbrella company to see how it goes. You can be up and running in a matter of hours with an umbrella provider.
A standard 336 minimum guaranteed hours per 12 months are generally provided for in contracts, meaning you will be paid at least 336 hours a year regardless of their contracts. This represents one working day per week of paid work.
Joining an umbrella company means that all your legal and financial obligations are taken care of:
We only recommend trusted Umbrella Companies. We thoroughly research all the Umbrella companies on our site to ensure that they are compliant with HMRC guidelines and provide excellent customer service.
All the umbrella companies on our comparison site have been reviewed and verified for your peace of mind and we do not endorse the following: inflated expense claims, advance payments, companies with no verified history, companies with consistently bad reviews.
Compare the Umbrella only use Contractor reviewed and Agency approved umbrella companies. Here are the top things to look for when comparing companies:
At Compare the Umbrella we only use Contractor reviewed and Agency approved Umbrella Companies meaning that they have a history of good practice in the industry.
Beware of Marketing Ploys
You will see umbrella companies advertising very high percentage take-home pay which can be misleading and may be calculated based on claiming lots of expenses that aren’t relevant to you. Similarly, any claims relating to being IR35 compliant are irrelevant for umbrella company contractors as they are legally employees and so aren’t affected by IR35.
Some umbrella companies will charge joining or exit fees. Make sure to find out all of the charges you are liable for before signing up to an umbrella company. Always read the small print and ask for clarification if necessary.
This could be weekly, fortnightly, or monthly depending on the umbrella company or your Agency/Clients billing terms. Choose the payment schedule that suits you best.
Does your recruitment agency have a list of preferred partners?
Many recruitment agencies will only work with umbrella companies that they have an established partnership with, so ask for their list of companies as a starting point.
If you are interested in joining a pension scheme, find out which umbrella companies offer this.
The Umbrella Company processes PAYE payroll as your employer.
Pay As You Earn, or PAYE, is the taxation system used by HMRC to collect Income Tax and National Insurance Contributions (NICs) from employees. The amount deducted will depend on your earnings and the tax code you are on.
This means that as a PAYE employee of an umbrella company, you won’t need to submit any kind of tax self-assessment. You will be paying your tax and National Insurance contributions as you go.
Working under an umbrella company will ensure that you are on the correct tax code.
Umbrella Companies may also calculate your tax relief and expenses.
There are certain allowable expenses that a contractor can claim under an umbrella company. The main one is travel expenses; however, these must be pre-approved by your agency/Client.
Simply submit your timesheets and expenses to your umbrella company and they will handle all the PAYE administration and make the necessary deductions before you are paid.
Your umbrella company will manage the PAYE payroll process for you, making all the necessary deductions and detailing your income.
Your PAYE payslip will itemise every incoming amount and outgoing deduction. Additions including, pay from your contract, claimed expenses, holiday pay, and sick pay claimed. Deductions including income tax, national insurance contributions, umbrella company fees, and pension contributions.
Even though the umbrella company are administering your payroll, you as the individual are responsible for your tax payments. HMRC will inspect your records as an individual. This means that even if the umbrella company has incorrectly calculated your tax payments, you are responsible for any underpayments. It is always worth double-checking that your tax and National Insurance Contributions are correct.
You are only entitled to claim certain allowable expenses directly incurred from your work assignments. Any fraudulent claims are illegal, and should you be investigated, you will be found to be non-compliant. Always keep records of your expenses. Your umbrella company may not ask to see receipts, but HMRC will if they are inspecting you.
Your employer i.e. the umbrella company is legally obliged to provide employees with a clear and understandable payslip containing all the relevant information.
If you do not receive your payslip or if there are any items that you do not understand or recognise, ask your umbrella company for clarification immediately.
As a contractor working under an umbrella company, you are entitled to claim certain allowable expenses. The expenses must be directly related to your work assignment and approved by your Agency/Client.
This is one of the major benefits of being a contractor rather than being permanently employed. Submit your expenses along with your timesheets and the umbrella company will manage all the necessary administration for you. Your expenses will be offset against your taxable income for that week/month, therefore saving you money on your tax deductions, increasing your take-home pay.
A company is usually required to complete a P11D form to claim approved expenses. Umbrella companies have a dispensation meaning that they don’t have to complete the P11D form for every single expense claim they deal with. The dispensation exists solely for the benefit of the umbrella company’s administration team, to cut down on paperwork.
The dispensation only applies to work-related expenses that qualify for full tax relief for example business travel expenses. There is no upper limit to the amount you can claim, but your expenses must be legitimate work expenses that have been approved by your Agency or Client and you must retain all receipts and proof of purchase for your records. If you are inspected by HMRC you will be expected to produce all relevant paperwork regarding your receipts otherwise you may be fined for underpayment of taxes or even fraud.
In the end, it is easy to see why so many people are signing up to umbrella companies. They offer similar take-home pay rates for most contractors or that they mean you won’t ever have to do a lot of paperwork or admin. You can claim expenses and that you can be up and running instantly (and leave just as quickly). With an umbrella company, you are already paying PAYE and NIC’s which means that you will be completely HMRC compliant.
With an umbrella company, your work will be hassle-free.