The good umbrella company checklist

So this is a blog about how to spot a good umbrella company, written by an umbrella company. We’re bound to be biased right? But hear us out!  

Imminent changes to how IR35 is applied in the private sector will make it less attractive to contractors to work through their own limited company. In many cases it will no longer even be viable, with some hirers making the decision that it’s “PAYE or nothing”.

Inevitably this will lead to a shift to umbrella working, as agencies and hirers seek compliant PAYE solutions.  

A major area of concern are the cowboys sitting on the sidelines waiting to take advantage of this increase in demand.  

We’re not going to tell you how you must use Liquid Friday, or talk about how great we are, or how well we do things. 

We just want to arm you with a few ways you can verify the legitimacy of any umbrella company you may be considering, and most importantly, what to avoid.

Basically doing things right

When you are looking at an umbrella company, the very minimum you should expect is that the answer of all of the below questions is “yes”. 

Your agency may already have done this as part of their Preferred Supplier List audit when they select which umbrella companies to work with.

  • Are they UK owned and registered, with no off-shore affiliations? 
  • Are you employed and paid directly by that company?
  • Do wages have PAYE tax and NI deducted?
  • Do they pay at least National Minimum Wage and only reimburse expenses above this?
  • Do they pay statutory payments including sick pay (SSP) where there is entitlement?
  • Do they pay at least 28 days holiday? This may be paid as you accrue it or held back and paid out when you take time off. 
  • Do they offer an approved workplace pension scheme?

Umbrella company warning bells 

HMRC warns, that if you encounter any of the below practices, this is likely to be a tax avoidance scheme, not an umbrella company (even if they are calling themselves an umbrella company):

  • Promising that you’ll keep 80 – 95% of your wages and be tax compliant
  • Only a fraction of wages is paid through payroll and subject to PAYE
  • You are paid using a loan, credit or investment payment, which the company claims isn’t subject to tax or NI. 

Often this sort of company will say things like “ we are HMRC compliant/ approved”. This means absolutely nothing!
HMRC does not sanction any umbrella company, just like an employer wouldn’t advertise a job as “HMRC approved employment”.  

In summary

For umbrella companies that play by the rules, the take home pay should be comparable. The only differentiators come down to the margin the umbrella company takes, the service they provide and any additional added benefits they offer, such as referral bonuses, or employment perks.

Probably the best advice is to look past the sales pitch, ask lots of questions, and if something sounds too good to be true, walk away.

Useful links 

Find an FCSA accredited umbrella company

Our A-Z of choosing an umbrella company 

HMRC guidance on tax avoidance schemes