How to choose an Umbrella company?

What should contractors be looking for from an umbrella company?

When you are looking for an umbrella company there are a number of things that you should bear in mind: Essentially, they are all governed by the Inland Revenue. This means that your earnings with one cannot be any higher than they would be with another; the only variance should be the fees that the umbrella company charges. A reputable umbrella company should not charge you according to what you earn. There is no more work involved, for the umbrella company, if you earn £50 per day or £500 per day. If you are quoted a percentage of your earnings as a fee you should ensure, through careful calculation, that you will still be paying a reasonable amount – average fees are between £15 and £25 per week. The only way of receiving payment through a third party, post 2007 budget, is through PAYE. Your umbrella company should be deducting income tax and national insurance contributions from your earnings. Any other payment structure e.g. dividends, loans etc has been declared illegal by the Government and, despite what some unscrupulous companies may tell you, there are no loopholes.

Choosing an umbrella company

When researching potential umbrella companies you should also ask if there are any hidden costs or penalties for leaving the umbrella company. Personal recommendation is a good indicator when making your decision but bear in mind that some agency recommendations may come from 'incentives' which are given by the umbrella company. To sum up – when you are considering which umbrella company to use – if it seems too good to be true then it very probably is!


Contractor UK's Directory of Contractor Umbrella Companies

Further Reading:

Contractors confused about umbrella companies

Umbrella Company guides