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What is an 'umbrella' company?

geek84geek84 Trusted RegularMAAT Posts: 564
Hi Folks


I am in the process of being offered a temporary contract for a job as a credit controller via a recruitment agency.


The lady at the agency says I have got the choice of going through the PAYE scheme or joining an umbrella company.


Can someone be kind enough to explain the difference between the two, and the advantages/disadvantages of going with either of them. Lastly, if I decide to go via an umbrella comjpany, how do I choose which company to join?


Thanks in advance for your response.

Comments

  • James PattersonJames Patterson Trusted Regular Registered Posts: 281
    Hi Geek84,

    As far as i am aware an umbrella company is an external company which will use a PAYE system similar to who you are contracted to but they charge a fee to who you're working for to provide their services.

    I think it is just more beneficial for the company you are working for as it reduces paperwork and they can offer benefits like Sick pay etc.

    Its something you'd have to look into personally, you may find them to be more benefical in terms of expenses you can claim, but i'd ask for recommendations off the agency or research it.

    Otherwise i just associate umbrella corp with Resident Evil haha

    Hope this helped in some way.
  • mrodsmrods Just Joined Registered Posts: 3
    Hi Geek84
    I had the same issue when i started to contract and to be honest it can be very confusing. As far as I am aware they both operate a PAYE scheme, both will take a margin out of your pay for their services, they will also take out of the pay NI Contributions and Tax. The biggest benefit I found for using an Umbrella Company is that you can claim certain expenses that you incur, unless the agency is operating a similar scheme you will not be able to claim them back.
    I worked through a company called Contractor Umbrella, they were really helpful and my account manager managed to explain how it all worked without confusing me!
    Hope this helps.
  • ketysmithketysmith New Member Registered Posts: 5
    Hi Geek84,

    As far as i am aware an umbrella company is an external company which will use a PAYE system similar to who you are contracted to but they charge a fee to who you're working for to provide their services.

    I think it is just more beneficial for the company you are working for as it reduces paperwork and they can offer benefits like Sick pay etc.

    Its something you'd have to look into personally, you may find them to be more benefical in terms of expenses you can claim, but i'd ask for recommendations off the agency or research it.

    Otherwise i just associate umbrella corp with Resident Evil haha

    Hope this helped in some way.
    Great response,well done !!! :)
  • James PattersonJames Patterson Trusted Regular Registered Posts: 281
    ketysmith wrote: »
    Great response,well done !!! :)

    Thankyou Ketysmith :) I do try
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814
    I have as well a question regarding umbrella companies...why a temporary worker has to pay Employer NI, on top of usual the PAYE/NIC?
    Surely this should be paid by the umbrella company as it's your "employer", not by the worker?

    Overall I think it's best if someone works under the payroll system of the company, as with the umbrella you earn less
  • Pearce161Pearce161 Feels At Home Registered Posts: 57
    Just wondering what happened with this as I'm now working on a temporary contract through an employment agency for a large organisation that has just gone through a massive expansion so there's around 20 of us new temps, half have been there about 6 weeks longer and some have gone down the umbrella route and are getting a better hourly rate plus expenses making them come out with between £30 - £60 more per week. I travel just short of 30 miles there and back everyday so seems like the umbrella could be the best option for me as the mileage claim alone will mean I come out with more money even after the £14 per week fees from the umbrella.

    Has any one had any experience of these and what happens when u finish the temp contract?
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814
    I have just worked with an umbrella company on a temp role. Definately you earn less that employed directly and you don't get a full refund of your expenses.
    The amount of expenses you claim is deducted from your gross income, which reduces the taxable amount your salary is based upon. As a result you will benefit from a reduction in the amount of tax and National Insurance you pay. Your expenses are not paid in addition to your income.

    If an agency gives you the option of using an umbrella company, RENEGOTIATE YOUR HOURLY / DAILY RATE before you accept. This is because the agency wants you to use an umbrella company because it can and will stop paying your employer's national insurance contributions, and you'll have to pay them yourself via the umbrella company. In addition holidays are also included in your hourly rate, so when you take time off, you don't get paid extra
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