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What You Need to Know if You’re New to Umbrella Companies

Umbrella Companies

With the reform of off-payroll coming in April, many contractors will soon find themselves needing to use an umbrella company for the first time, whether it’s a temporary stop-gap while their client gets their act together, or a more permanent situation in the post-reform world. In this article, we’ll explain what you need to know about umbrella companies, so you can make the transition from your limited company as smoothly as possible.

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How umbrella companies are different from running your limited company

The main difference is that you’ll be an employee rather than a director and shareholder of a limited company. This will mean all your pay will be paid as salary and will be subject to PAYE tax and NICs. The umbrella company will have a number of legal responsibilities as your employer, including paying you statutory payments like sick pay, and providing a workplace pension.

Employment rights through umbrella companies

Because umbrella companies offer employment, you will be entitled to all the rights, benefits and protections that UK law affords to employees. These include:

  • Sick pay
  • Holiday pay
  • Maternity/paternity pay
  • Access to a workplace pension scheme

You will usually be employed continuously across all your contracts, which means you’re still employed, and still entitled to these rights, when you’re between contracts or taking a break.

Umbrella companies and expenses

You’re generally able to claim a wider range of expenses as a director of a limited company than you can as an employee, so you may see the value of your expenses claims drop. Your umbrella company is bound by the same rules that all UK employers are, and there are limited circumstances when they’re allowed to pay your expenses tax free.

Travel and subsistence claims are a particular hot spot, as home to work travel will usually be “normal commuting” rather than business travel, unless you can show that the client has no right to Supervision, Direction or Control (SDC) over the way you complete your work.

If the right to SDC does exist, you may be able to claim for travel and subsistence when you’re attending a different site, just like your client’s employees can.

Chargeable expenses

Chargeable expenses are expenses that your client has agreed to reimburse for. Payment should go to the umbrella company rather than directly to yourself, and they will need to establish that each is a legitimate business expense before it can be paid to you tax free.

Workplace Pensions

As a UK employer, your umbrella company is required to provide, and contribute to, a workplace pension for all their employees. Once you’ve been in their employment for 3 months, they must enrol you onto their pension scheme. You are allowed to opt out once you’ve been enrolled, but the umbrella is not allowed to encourage you to do so.

Some umbrella companies may allow you to contribute to your own chosen pension scheme on a salary sacrifice basis

Additional employee benefits

The benefits we mentioned above are things that all UK employers, including umbrella companies, are required by law to provide to their employees. Depending on your umbrella company, you might find that other benefits are available to you. For example, Orange Genie employees get access to Orange Genie Edge, with a huge range of benefits designed to make their money go further, help them care for themselves and their families and improve their health and wellbeing.

Not all “umbrella companies” are compliant

So far, we’ve been talking about compliant umbrella companies, but a quick Google search will throw up plenty who have no interest in doing things properly. Many tax avoidance schemes badge themselves as umbrella companies, and they represent a huge risk to your financial future, as well as being a risky prospect for your agency/client.

For this reason, we strongly recommend that you make sure your umbrella company is accredited by FCSA, as this is the easiest way to make sure you’re dealing with competent experts who are committed to doing things correctly.

If you have any questions or if we can help in any way, please call our expert team on 01296 468 483 or email or read our guide to umbrella companies.

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