Last year, the UK government introduced off-payroll reforms in the private sector which they couldn’t implement because of the pandemic caused by the coronavirus. From 6 April 2021, the off-payroll reforms have been implemented in the private sector.

Many limited company contractors have started working with an umbrella company for leveraging “off-payroll working rules” or IR35 reforms. As per the survey conducted by the Association of Professional Staffing Companies on recruitment agencies - 91% of these agencies revealed that utilisation of umbrella companies will take over the market.

Understanding Compliant Umbrella Company

To handle your tax and legal work, you’ll engage with an umbrella company to become your employer. They will provide you with the same protection and employee rights that a permanent employee enjoys.

Umbrella companies send invoices on your behalf, deduct their margins and apprentice levy, employer pension contributions, holiday pay and employer national insurance. In the end, they pay you “Net Income” after deducting PAYE Tax and NI from your gross pay.

You have to be more sceptical if an umbrella company offers you employment without NI and PAYE tax deductions. These companies are frauds which are setup mainly to avoid tax.

Picking an umbrella company

The key to determine an ideal umbrella company is knowing whether they are compliant with the standards set by HMRC or not. Even though umbrella companies are unregulated, most of them still take accreditations from different bodies such as - the Freelancer & Contractor Services Association and Professional Passport.

When you are satisfied with the complying qualifications of an umbrella organisation, then find out about the help they give to their workers. A few inquiries to pose:

• What extra advantages do they offer above legal privileges?
• Would you be able to choose to have business' pension contributions made into your current pension account?
• Will they be available online or offline at specific hours, when you need to address them?

Have a bookkeeper/accountant from the time of your limited company? Well, request their recommendation as well. A large number of bookkeepers/accountants have been around some time and may even have a current relationship with an umbrella firm that could make changing among restricted and umbrella working simpler.

What is an assignment rate?

It is imperative for every contractor to know about their assignment rate. From April 2020, the recruitment agencies are obliged to give a Key Information Document (KIDS) to the job-seekers. This document will tell you about all the deductions made from a specific payment system.

The umbrella company will give one for each payment method and if they don’t request it.

To sum up:

Looking for the best paying umbrella firm is not the path you should take as most of the compliant umbrella companies make the same deductions. The only difference comes between their fees and your workplace pension contribution.

Concede taking the advice of an end-hirer or even your accountant regarding the practical insights when determining a compliant umbrella company.

Also See: Tax Implications Outside IR35