Here are our Top 10 tips for choosing an umbrella company, based on our team’s own experiences as contractors, and having run some of the UK’s leading contractor resource sites over the past decade.
Most umbrella companies will charge on a weekly or monthly basis, depending on how often you are paid. A few schemes charge a percentage of the value of your invoices, which can work out to be very expensive. Make sure you know how much you will be paying before signing up.
How established is the umbrella company? How long has it been operating, and how many contractors does the company have on its books? There are plenty of very good newer schemes on the market, so this is just one factor to consider when researching the market.
You may hear claims that some umbrella schemes are ‘IR35 compliant’, implying that they can offer something special. In fact, all PAYE umbrella companies are IR35 compliant, as the IR35 rules simply don’t apply to umbrella company employees, as you pay full income tax and NICs on your income.
Be weary of any umbrella schemes who boast that they have some kind of special ‘expenses dispensation’ from HMRC. You can only ever claim for expenses you have genuinely incurred during the course of your contracting duties. The amount of expenses you can reclaim should be the same regardless of which PAYE umbrella scheme you join.
Does the umbrella offer a contributory pension scheme? It is worth considering investing in pensions, as despite an erosion in tax breaks over recent years, it pensions do offer a rare chance to shelter some of your hard earned income from the taxman.
You should expect to receive good quality, informed customer service from your umbrella scheme. Typically, you will have your own account manager as a central point of contact.
Many end clients insist that their contractors are adequately protected by business insurance. Find out what level and extent of cover your umbrella company provides, and ensure that any professional indemnity cover applies to your specific profession.
Find out how the umbrella company pays its contractors – this will usually be via BACS, although some companies will pay you via CHAPS, which is a same day service. Ask prospective umbrella companies if they charge extra for faster payments, and how their payment cycle operates. Find our more about umbrella company payment methods.
Agency Preferred Suppliers
Most of the leading recruitment agencies have relationships with umbrella companies and accountants. In some cases, financial ‘sweeteners’ or kickbacks are paid to recruitment consultants who recommend new contractors to a particular umbrella scheme. Bear this in mind, and don’t feel pressurised into signing up without having time to research the marketplace.
As with many things in life, you simply cannot beat a positive recommendation from another contractor. The contracting industry is relatively close knit, and poorly performing service providers tend to get a bad name for themselves.
- Limited company expenses if you are caught by IR35
- How to choose a limited company bank account
- How to choose a limited company name
- Why ltd company contractors don’t work as sole traders
- How should you protect yourself from IR35?
- ClearSky Accounting - specialist support for contractors
- Visit Hiscox for Professional Indemnity and Business Liability Insurance
- Contractor Finance - up to £30,000, when you need it
- InTouch Contractor Accountants - Personal Online Accounting
- Join PCG - Free impartial start-up advice for contractors.
- Visit Qdos Consulting for tax investigation cover and IR35 insurance.
- 90% Pay Retention for Contractors - Helix Management Ltd