Choosing the right umbrella company in the present scenario has become all the more difficult, and especially after the legislative changes. We have prepared an in-depth guide to help you choose the right umbrella company, and also help you differentiate between a good one and a bad one.
As a contractor you need to select wisely. Choosing a wrong umbrella company could have a negative impact on your contracting career. It may also bring legal and financial troubles for you - yes, it can be that serious! This is one of the reasons why many contractors use a limited company for contracting.
They also trade using a Limited Company because it gives them more freedom and control over their finances. Having said that, it may not be the best route for contractors who don't like paperwork and accounts management.
It's easier said than done!
Now, let's help you make the right decision through our umbrella company tips and guide.
Contractors often choose the umbrella company route because they want to avoid the hassles of running a limited company. They don't want to get involved in managing spreadsheets, filing VAT and company returns or be bothered about other taxation issues. Missing a VAT return deadline or filing a corporation tax late could have some serious financial and legal implications, in some cases. This is one of the main reasons why contractors choose to trade using an umbrella company.
You don't have to worry about spreadsheets or taxation issues because your umbrella company does all that for you, including your payroll matters. Plus, you save on company formation and running costs. This route works best for short term contractors.
So once you have decided to go down the umbrella company route, you need to make sure you choose the right one, but how?
Always look for an umbrella company who has been there and done that, look for an established umbrella company. Don't just go by their website, check for independent online reviews as well. Go to contractor forums, visit specialist contractor portals - try to dig deep. Find out for how long have they been operating, ask for testimonials.
Check if their scheme is fully disclosed and examine claims about HMRC approval or tax counsel’s opinion to ensure their circumstances. There are many umbrella companies who claim to be best pay umbrella companies offering you more than 80% take home pay. These are exactly the umbrella companies you would want to avoid. They may sound fancy but they are mostly not legitimate, try not to fall for it.
Always ask for their complete fee structure - some umbrella companies charge entry and exit fees. This means you have to pay something when you sign up and there may be penalties if you leave them early. Make sure you read your contract - especially terms and conditions of your employment, notice period and termination clauses. Some umbrella companies may try to hold up your money - so read your contract thoroughly & carefully. Some illegitimate umbrella companies will try to keep these things hidden from contractors.
Also, ensure that your tax return and P11D submission fees are included in your package. You should also receive an annual P60 from your umbrella company, and make sure you are not charged extra for this.
Find out how and when you will be paid, after submitting your timesheet. Good umbrella companies are easy to setup and offer same day payments. Ensure that there are no 'pay when paid' clauses in your contract. You should also qualify for minimum wage, holiday and sick pay, which are all statutory.
Check if they have an online portal where you can submit your timesheets online, and find out if it can be accessed 24/7. Also, find out what level of customer support you will get and are there any additional charges for that.
If you follow our tips and do some due diligence, you'll surely be able to differentiate between a good umbrella company and a bad one pretty quickly. You can also have a look at our Top Umbrella Companies page if you need help in choosing the right one.
Still, if you need any help with choosing the right one then you can also email us on [email protected], and we will be more than happy to help you.