Tax and contracting News

The future, according to some scientists, will be exactly like the past - only far more expensive.

The importance of choosing a good umbrella company

12 - 12 - 2013

'Distrust and caution are the parents of security.’ - Benjamin Franklin 

In these uncertain times, financial security is not something to be taken for granted. The past few years have seen many of us struggling to get work and, as a result, counting every penny. While we now seem to be crawling out of the economic pit we found ourselves in, we do not make our way towards the new horizon unarmed. We carry with us many lessons learned. Lesson one, it seems, is the importance of trust and caution when it comes to our financial affairs.

The various banking scandals of recent years have left many of us feeling cynical about the businesses we entrust with our money on a daily basis. Quite rightly, we have learned to regard such organisations with suspicion and we now exercise caution, and sometimes paralysis, when confronted with choices regarding our money. 

The employment industry has been awash with rumours of umbrella payroll companies on the verge of going under lately. It’s enough to send even the most seasoned umbrella worker out into the rain and have recruiters covering their barge-poles. But, as usual, facts are paramount. 

Bad practice, unfortunately, affects every industry, including the world of umbrella payroll. But before you dismiss the idea of working with an umbrella company or decide to cut your ties with the companies you already engage, consider these points:

1. Reputable and compliant umbrella companies do exist

Horror stories make the press. You’re unlikely to hear a peep from the happy worker getting paid week in week out through a compliant, efficient umbrella provider. But that doesn’t mean that such workers and such companies do not exist. If you don’t believe us, take a look at what these workers have to say. 

Word-of-mouth plays a big part in deciding whether or not you can invest trust in an organisation and listening to what workers have to say about their experiences can affect how likely you are to engage a particular umbrella provider.

2. A good umbrella pays its workers accurately and on time

The last thing an agency or worker wants to deal with are late or inaccurate payments so finding an umbrella company that has appropriate systems in place to ensure that everyone is paid the correct amount on time is paramount. Additionally, an umbrella that deals with issues immediately and efficiently will minimise the time and effort a agency or worker will have to spend correcting a problem. If an umbrella provider is ill-equipped to pay its employees properly, it is unlikely to keep workers happy for long.

3. A good umbrella company has good connections

Evidence that an umbrella company is operating a legitimate service can often be found in their connections. An umbrella company that is regulated, or supported and advised by a professional firm is unlikely to be involved in bad practice. For instance, you know you can trust Foremans (UK) Ltd because it is administered by the fully regulated chartered accountancy practice Foremans LLP. 

4. A good umbrella company does not need to offer incentives 

Do not make the mistake of falling into the arms of the first umbrella that offers you a commission for introductions for new contractor customers. Ask yourself why the company needs to make such an offer. To make a decision on whether or not to engage the services of an umbrella provider, further investigation is required. 

5. A good umbrella company adapts

A good umbrella service shows a willingness to tailor its systems to support the way in which an agency prefers to communicate. This approach results in a more efficient service for all parties involved. A readiness to adapt prevents late and inaccurate payments and other avoidable problems.

6. A good umbrella company keeps good records

An umbrella company that cannot keep its paperwork, contracts and financial systems in good order should set alarm bells ringing. If the umbrella company you use is continually losing records, getting contracts mixed up and missing payments, you may want to think about changing your arrangements. A good umbrella company will not put unnecessary administration pressure on agency staff.

7. A good umbrella company does not allow illegitimate expenses

An umbrella company that allows its employees to claim illegitimate expenses is another alarm-bell ringer. A reputable umbrella company allows its employees to claim legitimate business expenses only. While it’s difficult to know for sure whether or not an umbrella is complying with HMRC’s expenses regulations, the company’s contracts and other paperwork and the information on their website should give you some indication of how much of a priority this is for a company.

8. A good umbrella company charges fixed fees

An umbrella company that bases its fee system on ‘a percentage of expenses paid’ may invite employees to overegg the expenses pudding. Good umbrella companies have transparent and easy-to-understand fee structures.

9. A good umbrella company complies with all relevant legislation, including the Agency Workers Regulations

It is important to be sure that an umbrella company has developed the necessary systems and procedures to support all relevant legislation. A good umbrella will continue to adapt their systems and procedures as necessary to meet interpretations of legislation such as the AWR. The umbrella will remove as much of the ‘paper chase’ as necessary from an agency while ensuring that AWR requirements are met for the benefit of all parties to an assignment.

10. A good umbrella company recognises the value of healthy competition

Exclusive arrangements are rarely healthy in business and a good umbrella company understand this. A reputable umbrella provider is confident that its services can compete fairly with those of other providers. Be wary of umbrellas that need to trap you into using its services.

Play the Numbers

Instant comparison between the forms of business; see the effects of legitimate expense claims, consider Flat Rate VAT or just adjust hourly rates and time spent. Look for your personal jackpot.

Help me decide

Talk to Us

Of course in the end there is no substitute for targeted personal advice. Your individual circumstances matter. You need our expertise. Get a free initial consultation – probably the best freelance decision you will make!

Help me decide

Instant Information

Our tax calculator is speedy. It is designed to give you results as you enter valid data – on the spot, in front of your eyes! We update regularly to make sure it always reflects changes in tax law and practice.

01244 625 500

Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage