Recent changes to IR35 (off-payroll working) legislation mean that many contractors are looking to set up with umbrella companies in the UK.

Although working through an umbrella company is much easier than running your own limited company, it can be confusing if you haven’t done it before. That’s why we’ve prepared this introductory guide with some of the most important things you need to know before you join an umbrella.

How umbrella companies work

First, it’s probably good to know how umbrellas work. When you join an umbrella company, you legally become an employee of that company.

They operate by charging your clients for your services and then pay you using the Pay As You Earn (PAYE) tax system for employees, deducting income tax and National Insurance as usual. Using an umbrella company is IR35 compliant because, unlike limited company contractors, umbrella workers can’t operate as ‘disguised employees’.

How much take home pay you’ll receive

How much will be left in your pay packet after taxes and fees are deducted by your umbrella company? It’s a good idea to ask your umbrella company for a personalised breakdown before you sign on the dotted line.

An important warning though - most compliant umbrella companies have similar fees. It’s almost impossible to offer 90+% take home pay and umbrella companies that promise this are probably scammers.

There are lots of ‘dodgy’ umbrellas out there

Unfortunately, there are many unreliable umbrella companies out there. As well as tax avoidance schemes that masquerade as umbrellas, there have also been many reports about umbrella companies that do not fulfil their obligations to employers.

The best way to tell if an umbrella company is trustworthy is to see if they are accredited by a reliable body. The best accreditation bodies in this industry are the FCSA and APSCo.

What extras are on offer

Most umbrella companies offer workers a range of additional benefits, discounts and more to try and sweeten the deal. On the Umbrella.co.uk Rewards programme, we offer extras that our workers have specifically requested, including a personal 24/7 doctor service, shopping discounts, fitness resources and professional counselling.

Make sure you check out what extras your umbrella company is offering and whether it suits your needs and lifestyle.

It’s unlikely you’ll be able to claim expenses

One major difference between being self-employed or a contractor through a limited company, and working for an umbrella company, is that you’re unlikely to be able to claim travel and subsistence expenses as an umbrella worker.

You’re only able to claim expenses if you are not subject to supervision, direction or control of the client while working on an assignment. The same rules apply for limited company contractors that are classed as ‘inside IR35’, so you won’t be losing out by joining an umbrella.

If you’d like to learn more about joining an umbrella company or want to enquire about our services, speak to a member of the team today. Call: 0800 121 6513.