by | Mar 2, 2020 | Blog, IR35 & Off-Payroll, Umbrella

Umbrella Companies – Good vs Bad

If the off-payroll reforms mean you’re no longer able to work through your own limited company, then you may need to look for a good Umbrella company instead.  But with so many Umbrellas to choose from, how do you discern between the good and the bad – and why does it matter?

There are lots of reasons to choose a good Umbrella company, but the most important issue revolves around compliance. An Umbrella company acts as your employer, so must deduct tax and National Insurance like any other employer, and provide statutory benefits such as sick pay, holiday pay and access to a company pension scheme.

An Umbrella that puts you first will:

  • Be well established with a proven track record.
  • Be a member of the Freelancer and Contractor Services Association, the main governing body for the industry. Chris James, Chairman of the FCSA, is Director of Accounting Services here at JSA.
  • Be proactive in explaining how your pay is structured, including all of the deductions made by the Umbrella company.
  • Provide a detailed pay illustration showing you how your take-home pay is calculated.
  • Be thorough with their on-boarding process, just like any other employer, by asking you for ID and doing all the standard background checks to ensure have the right to work in the UK.
  • Provide all the statutory benefits of a regular employer ie. sick pay, holiday pay, maternity/paternity pay and access to a pension scheme.
  • Provide relevant insurance cover such as professional indemnity, employer and public liability cover.

If an Umbrella is acting non-compliantly it leaves you exposed:

  • You may not pay the correct amount of tax. If you’re caught, you could have to pay the tax you owe as well as hefty penalties. Tax evasion is a criminal offence, so you could also face the full force of the law.
  • You may not be offered the employment rights you are entitled to, short-changing you on the benefits that are there to protect workers.

You should think twice before signing up with an Umbrella that:

  • Offers 80%+ take-home pay – this is a sign that they may be trying to work around HMRC’s tax rules.
  • Offers to pay you via a mixture of salary and loan, claiming that the loan is a non-taxable payment. This is unlikely to be seen by HMRC as a genuine loan.
  • Makes non-compliant deductions from your gross pay before they calculate the tax that’s due in order to increase your take-home pay.
  • Has hidden margins that change according to how much you get paid.
  • Adds fees for providing services which should be included as standard ie same-day payments, references and the provision of standard documents.
  • Does not proactively provide an accurate take-home pay calculation.
  • Deducts money from your earnings to cover statutory entitlements such as holiday pay and sick pay
  • Allows you to claim tax relief on business and travel expenses without taking account of the tax consequences.

Understand Umbrella working

To protect yourself, it’s important to understand how Umbrella contracting works.  We’ve put together a handy guide which explains everything you need to know.

What to do next

JSA Umbrella is fully FCSA accredited and is one of the largest and longest established in the UK. On-boarding takes only a few minutes and we can usually get you set up and ready to work on the same day.

If you’re affected by the IR35 reforms, you’ll find we offer a fully flexible service, allowing you to easily toggle between PSC and Umbrella working, if that’s what suits you best.  Alternatively, you can use our Umbrella for free if we look after your PSC accounts.  Find out more about our Umbrella contracting solution or register your interest using our simple online form and we’ll get in touch to discuss further.

JSA Group

Specialist outsourced accountancy and payroll services for recruitment agencies, freelancers, contractors and umbrella workers. We’ve built up expert knowledge and experience within the industry by supporting tens of thousands of customers for 30 years.

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