An Umbrella Company is a company which provides payment services to contractors by acting as their employer. They typically have hundreds or thousands of contractors being paid through them which means they can deliver payroll services at a nominal fee. They are also known as Contractor Management Companies. American independent contractors use the term PEO (Professional Employer Organization). The UK has the largest and most well-established range of Umbrella Companies in the world, underpinned by heavy use by contractors in the City of London. Successive governments have legislated against the use of certain Umbrella Company structures with limited success.
Umbrella Company’s similarities and differences
Umbrella companies in the UK can be structured in a variety of ways – the term applies to virtually any company which handles payment for contractors. This means that umbrella companies may operate a simple PAYE structure they may supplement this with expense processing or dispensations. Even operators running more aggressive Financial Management Structures including Employee Benefit Trusts or Loan Schemes are still described as Umbrella Companies.
All Umbrella Companies have some services in common. They will sign a contract with the contractor and also sign a contract with the recruitment agency or end client. They handle invoicing and the processing of payment. They calculate and submit income tax, national insurance and pension contributions as required. They will hold the necessary insurances and licenses including Professional Indemnity and Public Liability Insurance. However, the methods of operation and levels of service can vary greatly. So can the net returns. You can compare the net return from a market-leading umbrella company vs a limited company or PAYE using our Umbrella Company Calculator.
UK laws concerning Umbrella Companies
Since April 2007 the MSC (Managed Service Companies) legislation has shut down the traditional methods of tax packaging used by Umbrella Companies – where they operated as limited companies except at a great scale. It is no longer legal to split most contractors’ payments between dividends and PAYE. All compliant Umbrella Companies pay their contractors as PAYE (Pay as you Earn) employees for a large portion of their earnings. They invoice the clients/recruitment companies and then process contractors through PAYE. Contractors are often able to offset their taxable income by claiming legitimate business expenses.
Allowable tax reimbursable expenses can include:
- home office
- work-related phone calls
- living away from home allowance
- offsite meals
- travel and relocation costs
Finding a great Umbrella Company
If you are looking for an Umbrella Company we have done extensive research into the best UK umbrella companies. Using our supplier assessment criteria and feedback from current contractors we have selected the top few and added them to our partner network. They offer the highest possible legal retention (up to 84%) and ensure:
- 100% HMRC Compliance by only using structures that have been assessed and approved by HMRC.
- Payment made to contractor on the same day it is received.
- Extremely quick and easy set-up.
- Alleviating the administrative burden of running your own Limited Company: no VAT returns! no invoicing! no Company Returns! Have you calculated the true cost of running your own Limited Company?
Our partners provide a higher level of service including dedicated account managers, IR-35 assessments and IR-35 insurance and retaining top tax QCs to deal with any routine enquiries from the tax office.
Contact us to obtain more information or quotes on your net earnings from a variety of different Umbrella Companies and choose the solution that best suits your situation.