What is an Umbrella Company?

20 January 2021

What is an umbrella company?

The primary function of an umbrella company is to organise payments for fix-term work undertaken by independent contractors. Its popularity chiefly surrounds its simplicity leaving the contractor to concentrate on their work while all responsibilities regarding their income are being taken care of.

How does it work?

When signing up with an umbrella company, you become one of its employees, and they act as an intermediary between you and your agency. As an employee, you will receive an overarching employment contract and have full employment rights like any other worker. Upon submitting timesheets, your earnings are collected from your agency or end client and paid straight across to you with all relevant PAYE taxes and National Insurance contributions deducted.

Umbrella companies often offer additional benefits included with their services, like professional insurance and access to discounted financial and mortgage advice.

What should I look out for?

It is essential to do a good amount of research before selecting your umbrella provider – get online, ask colleagues who have had a good experience and speak to your agency who have preferred suppliers and is likely to make recommendations.

Unfortunately, the market is littered with non-compliant solutions, and although government regulations have tried to clamp down on them, they still exist. Some may offer you a big take-home pay with reduced tax liabilities, which has its obvious short-term positives but may leave you at risk of hefty backdated tax penalties from HMRC. Others may run offshore loan schemes or other tax avoidance operations, such as those identified here by HMRC. If it sounds too good to be true, it generally is.

When researching or speaking to an umbrella company, find out how long it has been running and whether it has any industry endorsements, such as an FCSA membership, the highest compliance level one can achieve in the industry. FCSA members undergo a rigorous review of their business services, operations and processes in liaison with HMRC to prove they are financially stable and provide a quality service.

For more tips on what to consider when choosing an umbrella company, visit our guidance page.

Why work with SmartWork?

At SmartWork, the full package is provided with a host of additional benefits. We process statutory sick pay, maternity/paternity and holiday pay and can assist you with mortgage advice and references. We also cover you for your work-based insurance, including Professional Indemnity and Employers/Public Liability.

We pride ourselves on our personalised service, with a dedicated account manager allocated to each contractor. Contractors can access our SmartWork portal, allowing them to easily upload timesheets, submit expenses, and e-sign documents. SmartWork is a fully accredited FCSA member, undergoing a yearly audit demonstrating that it fully complies with the trade body’s strict code of conduct.

If you’d like to know how we can help your contracting career, please call us on 0800 434 6446 or send us an e-mail at info@smartwork.com. Follow us on LinkedIn, Twitter, and Facebook for more news and blogs.