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sw what is umbrella

An umbrella company cannot generally sponsor a Skilled Worker visa which was previously called a Tier 2 visa, as the visa can only be sponsored by the company for which you will perform the work and guarantees must be provided.

Umbrella companies do not find work for the workers they employ. That is the recruitment agency’s job. Umbrella Companies make sure you are fully employed with applicable rights, are get paid and are paying the correct contributions.

Yep. As well as paying you as an employee, they handle necessary PAYE deductions like tax, National Insurance and pension contributions. Plus, they deal with HMRC directly, saving you any related admin.

The short answer is it depends entirely on your circumstances. If your only source of income is paid to you via an Umbrella Company, then no you don’t need to submit a personal tax return. If you have additional income sources such as rental income from tenants etc. then you’ll need to file a Self-Assessment to declare this.

Employers NI and the Apprenticeship Levy are deductions that are required to come out of the assignment rate that a temporary worker negotiates with their agency or client. There is a common misconception that umbrella companies are being unreasonable and unfair by passing these employment costs on, that’s not the case. The money received by the agency is subject to these deductions and then the salary is calculated. Assignment rates for umbrella workers should be negotiated/uplifted to reflect the additional deductions.

Yes. As an umbrella contractor you are entitled to 28 days per year. Your holiday pay will be clearly stated within your employment contract and paid to you over the course of your contract. This is often advanced with each payment, you will see this on your payslip.

So contrary to what is often stated, Umbrella employees do have statutory rights and protections afforded to them, meaning every employee of an umbrella company is entitled to Statutory Sick pay.

Statutory Maternity Pay (SMP) is paid to eligible workers for up to 39 weeks and usually starts as soon as you take maternity leave. For the first six weeks you will receive 90% of your average weekly earnings and then for the remaining 33 weeks, this will be either £151.97 or 90% of your weekly average earnings, depending on what figure is lower.

Your maternity will be paid through your umbrella company’s PAYE system with tax and National Insurance deducted as normal.

The much quoted line is that umbrella companies are unregulated and unethical, which is simply not true. A few bad apples are ruining the whole bunch. Compliant umbrella companies are not unethical – they’re providing a legal employment and PAYE payroll service for their clients and customers. And, they’re helping the government ensure temporary workers pay the correct amount of tax and NICs.

Recruitment agencies often suggest that you use umbrella companies from their chosen list, in reality they cannot dictate to you which umbrella company to use. 

Nope – run for the hills if you’re offered it, in most cases it’s a serious red flag. (Note… it may not be the umbrella that offers you it, be weary of broker calls out of the blue!).

Contractors are professionals who provide skills or services to companies for a set period of time. They usually have a very niche skillset that an end client may need for a particular project, hence they’d rather not take the individual on as a permanent employee.

An umbrella company is a company that employs contractors who work on temporary assignments, usually through a recruitment agency. The umbrella company provides payroll services on behalf of the contractor and bills the agency (who in turn bills the client) for work completed by the contractor. The umbrella company processes all tax payments including PAYE and National Insurance on behalf of the contractor. They also provide the contractor with full employee rights.

If you are working through an Umbrella Company you are employed by the umbrella company so you are not self-employed.

As it currently stands, no one. There are self-regulatory bodies that are well respected but do not come with a stamp of approval by anyone other than themselves.

Simple checks can make you certain they are compliant. Check they operate PAYE only, check they provide realistic take home pay projections and check they provide employee rights and legitimate benefits.

If you are working through a recruitment agency or providing services to a client, an umbrella company acts as your employer for your payroll purposes.

All your income tax payments are taken care of, so you don’t need to submit a tax return. As an employee you get statutory sick, maternity/paternity and holiday pay, and enrolment onto a pension scheme. You have freedom in the way that you work, can work multiple contracts at once and you can choose assignments that best suit you. Basically you work like you’re self-employed, but you have full employee rights and someone looking after your payroll!

Mini umbrellas are small enterprises that exist when multiple limited companies are set up to enable fraudulent activity. Each company has a small number of temporary workers, and a promoter business facilitates its structure. Sometimes referred to as an outsourcing business, it can have linked businesses which support the operation. The creation of the mini umbrella companies and complex layers of businesses within the supply chain help facilitate fraudulent activity. The companies also significantly reduce tax, National Insurance and VAT payments to HMRC. They abuse small business incentives from the government, like employment allowance and the VAT flat rate scheme. They should be avoided!

Red flags to avoid an umbrella company:

  • Your take home pay calculation seems to offer too high an amount
  • Check the umbrella for unexplained deductions
  • Key an eye on your holiday pay. Make sure you are getting it
  • Be vigilant against mini umbrellas and tax avoidance schemes
  • Check their reviews

You can work multi jobs for a range of businesses, yes.

To be ‘inside IR35’ means that your role is considered to fit the description of an employee and therefore payment must be subject to PAYE, if you want to remain a temporary worker/contractor then you’ll need to be paid PAYE by your agency or engage an umbrella company to employ you.

To be outside, you are operating legitimately as a temporary contractor and are being paid to your limited company or you’re self-employed. Either way you’re responsible for your own tax affairs and you may not have full employee rights.

Yep. As an employee you should be auto-enrolled within 3 months, but you can opt out should you wish to. The employer 3% contribution is deducted from the money received from the agency.