PAYE Umbrella Companies - Employment Managment Companies

Umbrella companies are ready-made invoicing vehicles that remove the administration, cost and hassle that exist for people who prefer to freelance or contract. In other words, an Umbrella Company allows contractors to contract without the need to operate their own Limited Company.

With an Umbrella Company, the contractor becomes an employee of the company and is paid a mixture of salary, expenses and pensions. Contractors do not become a director or shareholder of the Umbrella Company and all the income is paid out via Schedule E. IR35 does not come into the equation.

This page is an explanation on PAYE Umbrella Companies only.

How did Umbrella Companies come about?

Umbrella Companies are the market's response to the introduction of IR35 by the government in 1999. IR35 was introduced to tackle the low 'tax revenue' stream experienced by HMRC as a consequence of contractors operating through Personal Service Companies.

Umbrella Companies remain a viable choice for contractors due to the convenience they provide and the fact that with all the new taxation legislation currently in place, the tax advantages that once existed for contractors using Personal Limited Companies have now been removed.

Another reason is that many agencies do not have their own PAYE payroll system, so they will outsource their payroll needs to an Umbrella Company.
What services do Umbrella Companies provide?

From start to finish the contractor gets to focus on what is important while the Umbrella Company deals with all administration, taxation and accountancy issues that arise.

The Umbrella Company handles the agency and/or client on behalf of the contractor, from the word 'go'. Starting with the contract, the Umbrella Company will ensure that all legal issues have been covered and that the interests of the contractor are met.

As regards the agency or client, the Umbrella Company will then handle the collection of timesheets, processing of invoices and collection of monies.

As regards the contractor, the Umbrella Company will guide the contractor as to what expenses they can and cannot claim, thereby allowing the contractor to enjoy the highest rates of take home pay legally allowable under a PAYE system.

Umbrella Companies cover the contractor with all the necessary insurances required in today's contracting environment, providing peace of mind that in the event of some calamity, both the contractor and agency are covered.
What are the advantages of using an Umbrella Company?

For contractors, Umbrella Companies are the definition of convenience. See above for the full range of services they provide to contractors.

In today's IR35 contracting environment, Umbrella Companies are as tax effective as any structure that can be used. They are also the lowest risk option around.

With an Umbrella Company, the freelancer is covered by numerous insurances for likely unforeseen events. This will be built into the cost of the service.

Questions to ask when shopping around for Umbrella Companies?

Income Retention:
How do you help me to maximise my take home earnings?
Do you tax mitigate in a manner that is legal and will not land me with penalties from HMRC?

Fees:
What are your fees?

Hidden charges:
Are there any hidden charges in using your services?

Leaving penalties:
Are there any leaving penalties, should I choose to leave?

Payment frequency:
When do I get paid? Do you have a 'same day' payment commitment?

Retention of funds:
Do you withhold any of my funds? Why?

Provision of insurances:
What Insurance Cover do I get and how much?

Transparency:
Do you provide an online system so that I can monitor my money?

IR35 and S660:
With your Umbrella Company am I protected from IR35 and other such similar regulation?

Quality of Service:
What evidence of service quality do you have?

Telephone:
When I phone, will I get through to my manager in a timely and efficient manner?
Is my manager trained, professional and courteous?
Dangerous Umbrella Companies

Unfortunately, this industry has attracted some unscrupulous operatives who have given the industry as a whole a bad name. Please take on board that not all Umbrella Companies operate in such a fashion, but rather endeavour to provide an honest, professional and law abiding service.

Below a list of things to watch out for:
Hidden Costs
Some Umbrella Companies hide costs from their contractors by simply not informing the contractor of the full range of costs that exist.

Hidden Clauses
Some Umbrella Companies hold contractors bound to them by inserting disguised 'early leaving penalties' in their employment contracts.

Reckless Expense claiming
When tendering for business, some Umbrella Companies will quote any level of expenses to win prospects over.

Many Umbrella Companies exploit the expenses system, allowing their contractors to claim expenses that are blatantly not 'business related', thereby exposing themselves and the contractor to penalties and fines from HMRC.

Money retention
Some Umbrella Companies are slow to pay their contractors timeously, with the aim of earning interest on monies held on deposit. Some Umbrella Companies even have the audacity to withhold a percentage of funds claiming it to be for such things as 'holiday funds'.

Atlantic Umbrella Company does not hide costs from it member contractors; does not have hidden clauses in its employment contracts, does not encourage the exploitation of its Expenses Dispensation, and does not withhold funds from its member contractors.
PAYE Umbrella Companies Vs MSCs
The term "Umbrella Company" is often used loosely, and generally speaking there are two types today. The first type is in effect a Composite Company which is a scheme that uses incorporation for tax avoidance purposes. These types are commonly referred to as Composite Umbrella's. Members of such schemes are advised to seek alternative contracting vehicles in light of the proposed MSC legislation that will almost invariably be enacted in April 2007. For more on Composites, please click here.

The second is the more tax complaint version, which are known more specifically as PAYE Umbrella's. Atlantic Umbrella is a PAYE Umbrella Company and has been since inception.