Umbrella companies can offer a lifeline to growing businesses by streamlining administrative tasks such as payroll management, segmenting projects, and making it easier to calculate taxation.
Most contractors opt to use an umbrella company to keep track of a variety of different projects – some of which may be running concurrently.
Furthermore, a compliant umbrella company will offer a range of potential tax benefits, while remaining completely compliant with HMRC requirements.
So how do you ensure that you choose a compliant umbrella company?
- It all comes down to research.
Before making any decisions, it is vital that you spend as much time as possible researching your options. Once you have established a shortlist of firms, dig deep into their history. You can do this by performing a basic search on Companies House, where you will find information about the company’s financial management and directors. Google the directors’ names and highlight any concerning results – for instance, a recent bankruptcy or any criminal proceedings.
Speak to current or former clients of the company to get an idea of their client relationships. And finally, speak to the umbrella company itself so that they have a chance to address any concerns that you might have.
- Check where they are located
If you are using an umbrella company to meet your payroll or PAYE needs, you need to make sure that the company you choose is not based at an offshore location.
Offshore firms are not subject to UK laws and regulations, and you may find that this makes the company a poor fit for your needs.
- Understand the fees
If you’re a contractor, make sure you understand the fees you are being charged. Are they fully inclusive or do you have to pay for extras such as processing expenses or completing tax forms?
Unfortunately, not all umbrella companies are transparent about their fees so ask questions about whether you will need to pay fees every week or each month.
As a contactor you may have to submit a tax return so find out if your fees include submitting forms such as P11D for your expenses and receiving your annual P60.
- Understand how you will get paid
Will you get paid weekly or monthly? Find out how and when you get paid and ensure that there are no ‘pay when paid’ clauses in the contract. You should be treated the same as any other employee so this means there should be no additional clauses in your contract and that you will still be entitled to statutory benefits such as holiday and sick pay.
You should also be entitled to certain expenses that you incur whilst performing your job so find out the detail on what you can claim for and how and when these are paid to you.
- Find out about your contract of employment
To reiterate, as an umbrella contractor you should be treated the same as any other employee. Therefore, you should receive a full contract of employment from your employer and be entitled to the same statutory rights and benefits of any other employee. Check that this is the case before you agree to anything.
- What other support do they offer?
A reputable umbrella company should have a HR department that you can turn to if you hit problems. They should be able to deal with any issue you have whether that be bullying in the workplace, disputes with your employer or any kind of discrimination. Find out what provision your umbrella company offers in these situations.
- How about if you leave?
If you decide to leave your umbrella company because your circumstances change and it no longer suits your requirements, then find out if there are any exit fees or penalties involved in doing this. As long as you have adhered to the terms and conditions of your employment, you shouldn’t be penalised so make sure you understand what your responsibilities are and what your umbrella company does in this event.
- Look at accreditations
Compliant umbrella companies are committed to increasing transparency in the sector and improving public opinion. If you are keen to choose a compliant umbrella company, take a look at any relevant lobbying groups, such as All Umbrella Companies are Equal. This is a group of more than 30 umbrella companies, which is campaigning for a new code of conduct to be implemented in the umbrella company sector, which ensures that all working practices are fully compliant with HMRC.
If your umbrella company does not take part in these calls for transparency, there is a chance that you may be dealing with a non-compliant firm – and this should set off alarm bells.