How to Choose the Best Umbrella Company in 2020
Contractors working with IR35 or those that may not have a definite date when they intend to spend contracting may be best suited going for a PAYE umbrella company option as opposed to a limited company. While contractor limited companies tend to be more tax-efficient, top-rated umbrella companies can make available convenient contracting solutions for businesses that are uncertain if contracting is something they intend to do for the long term.
But just what do umbrella companies provide to contracting companies and how do you determine what type of company is the best fit for your needs. Here are ten guidelines on how to select your umbrella company solutions provider:
- Determine if the company provides trading solutions that are a good fit
Umbrella or limited company – what should you use? Ensure that when you are going through the options, you opt for something that offers what your business needs. One of the best way to do this is to explain your needs and situation to a contractor accountant and the umbrella company, who will then offer advice on the best structure.
- Do Your Research on the Umbrella Company
Even if you determine that your company would be best served under an umbrella structure, it is critical to dig into the background of the company providing the solutions, including the duration for which it has been in operations and how good its credit rating is. Ask if the company will move your company’s money out of the country at any stage of the process. If it will, then that means the company may be an offshore tax solution provider rather than a true PAYE umbrella company.
- Ensure you Understand the Fees Involved
Many umbrella solution providers are not upfront on the costs and fees involved and hence it is important to get that information so that you are aware of what you will be expected to pay every month or every week. Prior to signing on to a contractor umbrella arrangement, determine if the fees charged are all-encompassing or if you will need to pay add-ons such as processing fees, filing tax forms, and expenses processing fees. If a service is offered free, ask why and how the company is able to do that.
- Make sure you Sign a Full Employment Contract
As a contractor under an umbrella company, you will be deemed an employee of the company providing the solution. As such, you will need to sign a full employment contract offered by the company so that you get to enjoy all the legal benefits and rights that all employees in the UK have a right to. Check prior to signing up that the company provides a full contract of employment.
- Determine how Claiming Expenses Works with the Company
Research and find out how claiming expenses works since there are companies that will make exaggerated claims asserting that you could save a lot of money on taxes through applying for contracting overheads without receipts. If the solutions provider advocates for such, do further investigation since if the company promotes or runs fraudulent expenses, there could be other aspects of its operations that may be non-compliant too. Note that it is possible for an umbrella company to claim a dispensation but this is not enough evidence of compliance. All it means is that the company is not obligated to submit a P11D form for every single contractor signed up with them.
- When and how you get paid
Check to ensure that the umbrella company typically pays on time after the submission of timesheets. You will also need to confirm that the contract does not have any “pay when paid” clauses. This is because such clauses are inappropriate for you as an employee. As an employee, you are qualified for statutory sick and holiday pay and minimum wage.
Confirm that Tax Paperwork is Included in the Solution
You may have to submit tax returns and if the solution provider does not include a dispensation, you may be required to file a P11D annually to account for business expenses. Moreover, the umbrella company provider should provide a yearly P60 and as such you should confirm that these are not charged extra but are included in the monthly or weekly fee charged.
Expense Free Exit
You are an employee of the company and hence you should never have to pay when you decide to leave. However, you should ensure that you understand the conditions and terms of employment and adhere to things such as termination clauses and notice periods just to be on the safe side. In some instances, you may find that the company has withheld some of your money for sick or holiday pay. In case there is any surplus, insist on it being paid when you get the final payment from the umbrella company.
Find out what kind of Support and Help is provided
It is highly likely that you will have a prosperous and long relationship with your clients. However, things can go wrong and you will need the umbrella company to provide support and help at such times. For instance, if you are accused of misconduct and umbrella company should have a human resources department that will offer advice and support and if possible offer representation at tribunal hearings.
Frequently Asked questions
What is the meaning of umbrella pay?
When you sign up as a contractor to an umbrella company, you become an employee of the company. Given this relationship, the agency pays the Umbrella Company which will deduct national insurance and PAYE contributions among other deductions and then pay you a salary just like any other employee.
What is the legal Status of Umbrella Companies?
The umbrella company is the third party and acts as a bridge between the employee and the agency. The contractor outsources some functions with regard to payrolls such as tax deductions and contributions which are then handled by the Umbrella Company. The outsourcing of such functions to umbrella companies is lawful.
Are Umbrella Companies Responsible for Paying Your Tax?
The agency pays your money to the umbrella company including any expenses and then the company will deduct National Insurance and tax before paying the contractor through the established PAYE system. As a contractor, you will receive your salary from the umbrella company after the necessary deductions have been made. The company will also deduct their fee before paying you.
Are Umbrella Companies a Rip Off?
It can be a massive rip off for agencies to employ staff under umbrella companies. They provide higher rates that will in no way compensate for the employers NI and holiday pay you will be required to pay.
Do Umbrella Companies Offer Holiday Pay?
It is critical to dig through the regulations and only then approach the agency with evidence of entitlement to holiday pay. You as the contractor is not employed by the agency but rather the solutions provider is. As such, the agency does not have to pay any holiday pay as they do not have a contract with you. However, the umbrella company owes you holiday pay since you are their employee.