A Guide to Umbrella Companies...Let Nasa guide you through
it!
Introduction
Nasa has produced this 'Guide to Umbrella Companies' to help you
understand more about Umbrella Companies and find out how to choose
the best umbrella solution to suit
you.
The guide not only explains exactly what umbrella companies are
and how they work but it also provides information on what you
should be looking out for - the warning signs of a bad umbrella
company, along with useful tips to help you find the good
ones. We genuinely want customers to understand umbrella
companies and to get the best umbrella company solution to suit
each individual and their needs. Because we offer our own
umbrella company (and have done so successfully for many years) we
are able to give you an accurate and honest account of umbrella
companies along with both the advantages and disadvantages.
It can be daunting when you're looking for an umbrella company
and are bombarded by different packages and prices. This guide will
aid you in understanding what the important aspects of an umbrella
company are, key tips and useful questions to ask along with a
checklist (which can be printed off) so that you can
compare companies and their packages as you research the
market.
Many contractors choose the umbrella company option as they
don't want the hassle of submitting invoices and being responsible
for their income tax and national insurance contributions.
This can be quite stressful especially if you are new to
contracting. Plus, it can all be extremely time
consuming. Using an umbrella company will completely
take over the administrative burden that comes with running your
own limited company. This does however mean losing control
over your business finances which for many really isn't a problem,
but others like to maintain more control. With this is mind,
it is important that you understand umbrella companies and how they
work in detail so that you can ensure you're making the right
decision.
So, what is an umbrella company, how do they work and
where did they come from?
An umbrella company is basically a company (with the same legal
structure of a personal limited company) that acts as an employer
to self-employed contractors working under fixed term contracts and
usually via recruitment agencies. In essence, the umbrella
company will invoice the agency on your behalf for the work that
you have completed, the agency will then pay the umbrella company
who will in turn pay you a salary, obviously making the necessary
deductions for income tax, national insurance and associated taxes
plus their fee for the service. (Umbrella companies pay you
through PAYE and you should receive a payslip from them in exactly
the same way as you would if you were in full time
employment.) You also have the added benefit of offsetting
some of your income through claiming expenses such as travel,
meals, accommodation etc…
Umbrella companies have become more and more popular over the
last decade and one of the main reasons for this is the nightmare
of IR35. IR35 is a piece of legislation put into place by the
government back in April 2000 which basically tests individuals
self-employed status to see if they are truly self-employed (and
eligible to make use of small company tax reliefs) or merely
disguised employees who should be paying PAYE.
As you are probably aware, IR35 has made huge impacts to some
businesses and in extreme cases, forced businesses to close.
IR35 investigations are not only time consuming and laborious, but
they can also be terrifying and extremely stressful. Many
individuals choose the umbrella company route to purely remove the
headache of IR35.
Still struggling to make your mind up?
If you haven't quite made your mind up yet about whether or not
to open your own limited company or to go down the umbrella company
route, you should certainly look at both options and do not rule
anything out until you have thoroughly investigated the
two. It is worth getting a professional opinion as to
whether or not your contracts and working practices fall 'inside'
or 'outside' IR35. The umbrella solution is certainly the
favoured option for those contractors falling 'inside' IR35.
It's also worth noting that if you're only planning on contracting
for a short period of time or if you only want the most simplest of
options, an umbrella company would definitely be the way
forward.
Down to the nitty gritty…
What are the advantages of using an umbrella
company?
- The simplest, most hassle-free way of contracting - you can
simply do what it is you do best - your job, without the
administrative burden that comes with running your own limited
company.
- No responsibilities - all of the accounting and taxation
calculations are dealt with by the umbrella company.
- Saves time - particularly if you are contracting on a short
term basis, this is the only sensible option.
- Easy to set up - most good umbrella companies have streamlined,
online systems which make registering and administering your weekly
or monthly timesheets a piece of cake. You simply submit your
timesheet - the umbrella company will then invoice your agency (or
client). Once payment of the invoice has been made, the
umbrella company will pay you net of all tax, national insurance
contributions and the fee.
What are the disadvantages of using an umbrella
company?
- You lose control over your finances with an umbrella
company. You have no control over the processing of any
payments.
- With an umbrella company, you are essentially an employee of
that company so if you are looking to start a business with a view
to building on it and eventually controlling all of the day to day
aspects of your business - an umbrella company won't do anything to
support your future plans.
- You have to have trust in your chosen umbrella company as you
are essentially handing over your hard earned money and are relying
on them to pay your tax and national insurance contributions
appropriately along with ensuring you are paid efficiently.
The decision has been made…
Once you have decided that you wish to use an umbrella company
as the vehicle to drive your services through, you now need to go
along the bumpy road of figuring out which umbrella company is
right for you. One of the best ways to learn about the 'good'
companies is by word of mouth. Start by asking your
colleagues, friends etc. if they know of or have had any experience
with umbrella companies and make a list of them. The internet
will also have some useful information about which umbrella
companies they believe are the best in the market but you will
notice that each company has a different list of umbrella companies
as they most probably have a vested interest in the companies they
are promoting. Once you have a list of the companies you want
to learn more about, you are ready to start learning about each of
them!
We have included below some useful questions to ask each
umbrella company to help in obtaining critical information about
each package:
What is the package and what exactly is included?
When you have the answer, review the package and ensure that the
features are actually going to be of benefit to you. Some
companies will try and pack their umbrella company full of so
called 'benefits' that are actually of no use to you at all.
You want an umbrella company that's going to provide you with great
value for money.
How much will it cost me?
You need to ask yourself whether their fee is competitive and
realistic. You won't really know the answer to this until you
have reviewed other umbrella companies and you know what each
package contains.
It is important to note however that you cannot earn any more
with one company than you can with another. The only way you
can get more of your money, is by choosing a company whose fees are
less. Also, there should be no reason why an umbrella company
would have differing rates depending on what you are earning as
there is no more work involved, so don't be fooled.
How long have you been offering the service? How many
clients do you have?
This is information is useful as you can get a good idea how
much knowledge and expertise they will have and how many clients
have already enlisted their trust into this umbrella company.
(Companies that have too many clients may not be a positive factor
as often customer service levels tends to drop.) It's also worth
looking at their customer feedback/testimonials which most
companies include on their website.
What is your customer service like?
Each company are going to tell you that they offer outstanding
customer service - obviously. But, you should definitely call
and speak to each company over the telephone and ask the question
as many people often get a feel for the good ones. You're
looking for a company who obviously knows their stuff but also, one
who's staff are friendly, positive and helpful. Sometimes,
you feel like you have purchased the best product in the world for
an unbeatable price but if you have to put up with poor customer
service regularly, you will most probably wish you'd purchased it
elsewhere!
What are your systems like?
This is important as although we constantly rant on about how
simple and hassle-free the umbrella company solution is, if the
system in which you are asked to provide your information isn't
very good, this small issue in itself may actually become a
headache. You should ensure that the company has simple,
streamlined system and processes in place. Ideally, online
systems are better as this will save you time too.
Now we're getting somewhere…but how about some useful
tips…
Ok, so you now know exactly what an umbrella company is and have
learned about the good and bad aspects of them. We've also
given you some useful questions to ask to help obtain valuable
information about each umbrella company on your shortlist. In
addition to all of this however, there are some useful tips to take
into account before making your final decision.
Firstly, ensure that the umbrella company is calculating and
paying your tax and national insurance appropriately. This
should be deducted from your earnings - any other
form of payment i.e. dividends and loans etc. are now illegal and
please don't believe the companies that try and persuade you with
talk about loopholes as this really isn't true and you could be
getting yourself into extremely hot water.
Secondly, umbrella companies have a dispensation with HMRC -
unlike normal companies, they do not have to complete P11d forms to
list all of the companies expenses. You do however have
to provide a receipt for every expense you claim. You must be
very careful not to try and claim for expenses that you don't have
evidence of as this could lead to a HMRC enquiry which as a result
could turn into a full investigation with fines and penalties
involved. Trust us it's not worth the hassle.
Finally, ensure that there are no hidden costs or 'extras'. If
on researching a potential umbrella company, the fee seems too good
to be true, it most probably is!
Also, be careful not to get tied into to something you can't get
out of easily and it's definitely worth checking that there are no
penalties for leaving the umbrella company.
Checklist
We have provided a checklist for you to use when researching
your shortlist of umbrella companies, based on the information
provided in this guide.
If you choose to utilise it, the checklist should hopefully help
record all of the important aspects of each company to help you
review and make your decision. The checklist works on a
scoring system from 1 to 3. 1 is excellent, 2 is ok and 3 is
poor. The lowest overall score should give you the best
umbrella company solution for you. (The checklist can be
printed off if you wish.)
Summary
We hope you have found our 'Guide to Umbrella Companies'
useful. If you would like further information or guidance
about umbrella companies or any of the points made in this guide,
please do not hesitate to contact us on 0117 904 7755 or at info@nasaconsulting.com.
Checklist
Company
|
Package
|
Fee
|
Customer Service
|
System
|
Experience
|
Score
|
Example Umbrella Ltd
|
2
|
1
|
3
|
1
|
1
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|