An umbrella company helps you to increase your take-home pay while paying full income tax and staying under the law of UK. The umbrella solution becomes popular after the implementation of a new tax known as IR35 in 1999. Later changes in HMRC guidelines discouraged Managed Service Companies (MSC), which left contractors with only two choices i.e. an umbrella company or a limited company.
Due to the nature of limited companies, they don’t suit every contractor. Many contractors simply don’t want to get into the hassle of setting up a new company. Others don’t want to commit as a company directory but they still don’t want to go back to permanent employment. This is where umbrella companies come in. They offer a middle ground for contractors so that they can continue working without having to set up their own limited company.
Getting started with an umbrella company is easy. All you have to do is to sign a contract and your company will take care of rest of the things. But before you get started, here are some important things that you need to ask your umbrella service provider before making a contract.
The very first thing you need to look for in an umbrella company is that can you access it by sitting anywhere in the world? Make sure that you can submit your timesheets online at any time, anywhere.
How flexible is the umbrella service provider with their payroll? How long it will take to receive the payments after submitting the timesheets? Is it possible to get the payments twice a month? A reputable umbrella company will offer you to receive the payments on a monthly, weekly, or fortnightly basis so that you can select a plan according to your requirements.
Also, you have to make sure that you can ask for emergency payments in case you need your payments earlier than routine. There should be a way through you can get your payments quickly.
While making a decision about a PAYE umbrella company, you need to make sure that they offer personal liability insurance cover. The insurance cover makes your payments safe and secure in case your umbrella company goes bankrupt.
The reason for joining an umbrella company is to increase your income by claiming true business expenses. An umbrella company allows you to claim travel expenses, equipment charges, lunch expenses, etc. You have to select a company that allows you to claim more expenses to enhance your earnings.
Fees and charges
It is important to look at service charges of the company before finalizing the deal. The top rated companies offer no signup or termination fee so that you don’t need to select a company that asks you to pay in advance. Also, there should be no charges for the period you are not working on any contract.
Another thing that you need to know is that some companies offer a variable fee structure. The cost of services you pay in this case increases when you earn more. Therefore, if your income rises, the umbrella company fee also raises. This can be a huge problem especially if you are looking to increase your take-home pay. A big chunk of your increased income will be deducted by your umbrella company as its fee.
Some companies display low fees and charge to attract the contractors, but most of them make you pay more money through additional charges. Make sure that there are no additional charges for, reference letters, sending the invoices, issuing payslips, P60’s, etc. Make it clear that you will not pay any extra fees except the service charges. Some companies may charge you a fee for joining and leaving the company. Beware of any such fees.
Most of the companies offer 24/7 customer support so that you can ask for help in case of an emergency without having to restrict yourself to office hours. The customer support staff makes sure that you are receiving your payments on time and not facing any issue regarding your timesheets or payments. Also, there should be no extra charges for 24 hours customer support as it is part of their services.