An Umbrella company provides a hassle-free and convenient way to be paid, and this way of contracting became popular after the introduction of IR35 in 2000.
Having chosen your umbrella company, you will become an employee of that company, and they take care of all the administration on your behalf. You’ll be paid by PAYE (Pay As You Earn) and to meet the rules of ‘continuous’ employment, they must usually pay you for 336 hours of work per year at the minimum wage.
Your Umbrella Company will raise invoices on our behalf and pass the proceeds onto you as a salary, after retaining a “margin” and deducting taxes in line with what you would pay in any other kind of traditional employment. The “margin” retained by your umbrella company should not be calculated according to what you earn. There is no more work involved, for the umbrella company, if you earn £100 per day or £500 per day.
Compliant umbrellas, such as Rubicon Pay, provide you with a contract of employment. This means you’ll have access to all the rights and benefits given to permanent employees, including holiday, sick and maternity & paternity pay.
You will be able to claim legitimate expenses as long as your end client or agency has agreed in advance to pay for certain rechargeable expenses incurred whist on duty. In this case, providing the expenses were incurred through attending a temporary work address, then your end client or agency would send us these additional funds, and we would pay these to you in full alongside your normal taxable income. However, if these expenses were incurred through attending a single work address for the duration of your assignment, then they would be treated as additional income, and would be taxable in the same way as the rest of your pay.
No compliant umbrella company is able to process non-chargeable expenses for tax relief purposes because of legislation issued by HMRC in April 2016 which considers every contractor working through an umbrella company as being under SDC, unless the contractor can prove otherwise. This brings tax treatment of contractors in line with those of permanent employees, who are unable to claim the costs of ordinary commuting or meals purchased while at work as an expense on their tax returns.
Here’s a brief summary of the benefits you can expect as an umbrella contractor:
- All legal, employment, tax and contractual obligations taken care of
- Greater earning power compared to permanent employment
- Spend far less time and effort on administration duties compared to a company director
- Get paid quickly, accurately and on time
- Benefit from employment rights, plus Professional Indemnity and Employers/Public Liability insurances