Why All Umbrellas Are NOT Equal

There’s a plethora of umbrella companies to choose from. Many advertise generous rates of take home pay and make boasts about the level of expenses a contractor may claim. Some even go so far as to claim to be “HMRC approved” or “100% compliant”.

Ultimately it is your attitude to risk that could determine which umbrella company to sign up with. Very simpIy, if you don’t want to put your weekly or monthly pay at risk or be worried about exposure to any unpaid tax liabilities, the choice of umbrella company can be quite straightforward.

The best advice is to do some research. It needn’t take long and will give you peace of mind once you’ve made your choice.

Fundamentally, all umbrella companies operate within the same legislative environment; when it comes down to it, tax and employments laws in the UK are the same for everyone. This means that most umbrella companies should be offering the same by way of claimable expenses, employee rights and contractual obligations.

However there are three key attributes of any good umbrella company, which should help you to decide who to sign up with.

Compliance

You need to know your tax affairs are in order and that the PAYE and national insurances you pay have been calculated correctly and paid over in full and on time to HMRC. A well run umbrella company will be compliant with UK tax and employment laws and will make sure you have paid the right amounts to HMRC.

As a UK resident you have to comply with UK tax and employment laws and your umbrella company should be bound by these laws too. So choose a company that is registered in the UK. It is important to note that The Channel Islands and the Isle of Man are not part of the UK.

Be wary of those advertising very high rates of take home pay.  Keep in mind the adage “if it looks too good to be true…it probably is.” As mentioned above, there should be little to choose between compliant umbrella companies operating in accordance with HMRC guidelines. If an umbrella company offers more, it’s usually because they operating in a riskier manner. And the risk is as much yours, which can leave you exposed to HMRC investigation and potential liabilities to unpaid taxes.

Avoid any company that states that you don’t need to prove your expense claims – if HMRC does query your expenses and you cannot provide the necessary receipts, a tax liability could fall on you.

Avoid any umbrella company that claims to be HMRC approved. HMRC has never “approved” an umbrella company.

Look for an umbrella company that is a member of a recognised industry body such as the Freelancer & Contractor Services Association (“FCSA”). These bodies exist to promote best practice within the sector, to act in the best interests of the contractor and to set the highest standards of compliance with UK tax legislation and employment law.

Financial stability

As an employee, should anything happen to the umbrella company that employs you, which  causes it to go into administration, you will be an unsecured creditor after the bank and HMRC. This means your wages would be at the highest risk of not being paid in full or not at all.

A well established umbrella company should be able to meet its liabilities and pay its employees (i.e. you) on time. No less importantly, the company should have a perfect track record of paying employment taxes (PAYE and NIC) over to HMRC.

A simple credit check (try Experian or D&B) will tell you at a glance all you need to know about a company’s financial wellbeing.  If a company has a low credit rating why take the risk with your wages?

So despite the large number of umbrella companies out there, the list of genuinely compliant and financially sound providers is actually quite short. And in terms of offering and cost there’s probably little to choose between the few.

So what sets the best apart from the rest?

Customer Service

A personal recommendation from a colleague or friend may help you choose, but the very best umbrella companies stand out because they offer the best customer service.

Look for a business that has a recognised customer services accreditation. This demonstrates that the company stands by its claims and has invested in its people and staff. Your wages are very important to you, so you should expect that your umbrella employer will deal with any queries and concerns in a professional and timely manner.

A customer-centric umbrella company should also reflect the working lifestyles of its clients. Many contractors do not have the time to deal with expenses or ask questions about pay during normal office hours. Your umbrella employer should know this and be available to speak to outside of the nine-to-five, ideally at weekends too. And in the information age you should be able to submit timesheets, expenses and receipts on-line or via your smart phone.  

All umbrellas should offer

• No joining or leaving fees.
• Full time, permanent employment rights, including sick pay.
• An overarching contract of employment.
• A minimum level of inclusive insurance.

 Article from Ben Dunn FCA, FD of JSA Services