Working through a new umbrella company for the first time? Here’s everything you need to know…

We know that umbrella companies can be confusing, and there is often a lack of transparency about how they work. That’s why our team has put together this blog, so that umbrella newbies know what they’re getting into – as well as major ‘red flags’ to watch out for.  

What is an umbrella company? 

Umbrella companies act as a middle man between contract workers and the end-client/recruitment agency and take responsibility for payments. This means the temporary worker doesn’t have to worry about deducting the relevant tax payments or National Insurance Contributions – these are all taken care of by the umbrella which will pay your wages through PAYE. Essentially, when you sign up with an umbrella company, you become one of its employees and are treated as such in terms of employee benefits etc. 

How do umbrella companies make money? 

Umbrella companies make money by retaining a margin from the contractor’s gross pay. This will either be a fixed fee which remains the same despite your take home or a percentage fee (such as 5% of your earnings, regardless of whether they change from month to month).  

Do bear in mind that it is unusual for an umbrella to charge you a joining/exit fee so it might be best to triple check that they are legitimate. 

What do you mean by umbrella ‘red flags’? 

Although umbrellas can be very beneficial for busy contractors who want to leave behind the arduous admin that is working out taxes, unfortunately there are some bad eggs out there. This is because umbrella companies in the UK are not technically monitored so there is always the risk that they are non-compliant with tax laws. A major warning sign that the umbrella you’re working with is illegitimate is if your take home pay is higher than expected. For example, if they advertise themselves as being able to save you tax – run in the opposite direction! Even if you do receive a large cheque at the end of each month, HMRC will eventually catch on and you will have to pay back all the tax you owe, so it’s really not worth it. 

Look out for umbrella companies which are accredited by either Professional Passport, the Freelancer & Contractor Services Association (FCSA) or the Association of Professional Staffing Companies (APSCo). Spoiler alert: Mint Umbrella is! 

For further advice on how to spot a non-compliant umbrella company, check out our blog post. 

I want to join an umbrella company, what do I need to hand? 

Found a suitable umbrella company? Great! All you need to do now is get in touch with them (usually over the phone) to begin the registration process. We recommend having the following information ready to share: 

• Your project and end client or recruitment agency
• Personal information, so have your passport / birth certificate handy
• Contact details
• A copy of your P45

During the phone call, feel free to ask questions about anything you’re uncertain about – especially if it’s your first time working under an umbrella company. 

Click here to find out more about how to register for an umbrella company or give our friendly team a call today on 0203 967 6846.