Umbrella

Accounting IT brings you an exciting opportunity to join our new AIT Umbrella Service Company.

As you may know Umbrella companies allow contractors to enjoy the best of both worlds, so you can maximise your income without the hassle of taking care of your admin and accounting.

Working under an umbrella company, you’ll also be able to access many of the same benefits and employment rights as those who are permanently employed – think holiday, sick and maternity and paternity pay.

At Accounting IT, we offer a NEW comprehensive umbrella service, ensuring you’ve got all the support you need every step of the way whether you are new to contracting or a seasoned professional contractor.

As a contractor, one of the most important decisions you can make is whether to establish your own limited company or work under an umbrella company. Though there are plenty of benefits to contracting under your limited company, a growing number are turning to umbrellas for the simplicity we make that more flexible and hassle free.

We have outlined below what an umbrella company does and why this may be the answer for you.

What is an umbrella company?

An umbrella company is a separate company that acts as an employer for contractors working on fixed term contracts. They also serve as an intermediary between the contractor and their end client or agency. The principle function of an umbrella company is to organise payment for the contractor. To do this they collect the contractor’s earnings from the end client or agency and then pay it onto the contractor with tax, National Insurance contribution and their own fee deducted.

Is Accounting IT’s umbrella company best for me?

If you earn less than £25,000 or are on a short contract and don’t intend to stay contracting for long, an umbrella may be the best option for you. Though you may take home less than you would through a limited company, many contractors opt for the simplicity of working under an umbrella.

Contractor expenses using an umbrella company

By claiming all appropriate allowances and expenses you can minimise your tax bill; however, this is not a way of avoiding tax. Receipts should always be kept for all the expenses that you claim. Remember it is you who HMRC will investigate and not your umbrella company, be very cautious of companies who say you do not need to keep receipts and can claim for things you have never actually bought. If you can’t prove it HMRC will view it as tax avoidance.

Support with contracting

Whether you decide to go limited or use the umbrella option, support is available.

When you work with an umbrella company, the way you work will usually follow this pattern:

  1. The umbrella company will enter into a business-to-business contract with an employment agency.
  2. As the contractor, you will sign a contract directly with the umbrella company.
  3. You will be working for the client, who will sign a timesheet for the agency to confirm how many days/hours you have worked.
  4. You will be responsible for sending your timesheet to the agency as well as sending a copy to your umbrella company which will include details of your expenses as well.
  5. The umbrella company will invoice the agency for the hours that you have worked plus any reimbursable expenses that you may have incurred.
  6. The agency will, in turn, invoice the end client for your work and expenses.
  7. The agency is paid by the client.
  8. The umbrella company is then paid by the agency, according to their payment schedule.
  9. The umbrella company receives the payment from the agency, including any expenses, and then deducts tax and National Insurance before paying you through the PAYE system. You will receive a payslip detailing the deductions which have been made, just as you would if you were in traditional employment.
  10. You will receive payment from the umbrella company, with all relevant deductions made, including a fee which will be paid to the umbrella company.

These days a lot of contractors are looking at umbrella companies as the safer option. Firstly, for those people who are new to contracting, the umbrella company is perfect because it allows someone to be up and running without any paperwork or admin (unlike a limited company) and to see if they like the contracting lifestyle. Secondly, umbrella companies are also perfect for those contractors who are already contracting and who love working for themselves but who don’t like getting bogged down in all of the tedious admin and paperwork that comes with running your own business through a limited company. An umbrella company removes all the worries of dealing with Companies House and HMRC, and means that the contractor will never have to go through the hassle of sending out invoices and then chasing down payments, all the while offering a rate of tax that is broadly equivalent to that paid by limited company contractors.

This flow chart shows you how the relationship between the client, the agency and the umbrella company works in order for you to get an idea of how they all interact to ensure that you are paid regularly. Usually it is the agency’s invoicing schedule which sets the pace of payments, so you will need to ensure that you complete all the necessary paperwork to their deadlines in order to receive your payment on time.

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Umbrella companies employ contractors using Contracts of Employment which make the umbrella company responsible for issuing invoices for your work. Because you will not be responsible for paying your own tax, there is no need to set up your own company and you will not usually need to employ an accountant.

It is also important to understand that umbrella companies are under the control of HMRC. The payments that they make are done through the PAYE system, and expenses claims may only include items or services which are allowed by the regulations HMRC impose. This means that you should take home as much of your pay as you would as a standard employee, minus the fee you pay to the umbrella company for dealing with the admin.

It is also worth remembering that the Agency Worker Regulations (AWR) have meant that some umbrella companies have started to sneak unlawful clauses, which include deductions from their clients, into their contracts which are not made clear until the contractor has already signed. To avoid being caught out by this, you should check the reasoning behind any deductions before you sign anything.

Some umbrella companies claim to offer more than others, and whilst there are variations between the promises they make, some of them will be too good to be true. Common claims that are made by less scrupulous companies include:

  • Higher wages due to the processing of expenses which aren’t receipted
  • Assurances that HMRC will not investigate
  • Claiming that their strategies are ‘HMRC approved’
  • Advertising their fees minus higher rate tax relief
  • Deceptively low start-up fees which are ramped up later in the process
  • Claims that the company is ‘IR35 compliant’

It is important to check the credentials of any umbrella company before you enter into an agreement with them. If your tax and National Insurance isn’t paid, it is likely that you will be pursued for any outstanding amount owed, so you should choose carefully to ensure that you aren’t putting yourself at risk by using a potentially disreputable company.

As a contractor, you may be seeking a simple solution to dealing with your finances, and an umbrella company reduces the pressure on you to deal with a significant amount of admin work. By allocating some of the work to an umbrella company, you can focus on your business and reduce the stress associated with working for yourself then choose AIT Umbrella Services to be your partner of choice.

The Service We Offering

How Much Do Umbrella Companies Cost? How Does Accounting IT Compare?

Don’t trust any umbrella company that doesn’t list their fees out in the open on their website. And certainly don’t trust any umbrella company that claims to be able to ‘earn’ you more than any of the others or provide more income retention. They can’t. The whole advantage of umbrella companies (and the reason they are never at risk of compliance investigations) is that they pay through PAYE and NIC’s and are regulated by HMRC. All company umbrella vehicles offer the same rates of tax and national insurance contributions – it is in the service they provide, the admin and back room support and the management of your expenses claims that umbrella companies earn their money.

Contractor umbrella company charges should all be around a similar price point when you are doing your research and trying to decide which company to go with. Any company that is way cheaper or way more expensive should probably be avoided. Indeed many PAYE umbrella companies will quote an after-tax cost on their headline prices because the payments are tax deductible – don’t be fooled by this rate. And also avoid any company that charges fees as a percentage of your invoices – this could end up being really expensive.

Here at Accounting IT we think our rates are very affordable and competitive, mainly because of the market leading support and services we offer for the money, which have led to us being one of the leading PAYE umbrella companies.

At Accounting IT the fees we charge are very simple and crystal clear – £20.00 per week or £78 per month. And that’s it – no extras, nothing hidden and no joining or leaving costs whatsoever.