Why do people choose the umbrella company route?
Becoming an umbrella company contractor usually appeals most to those who have just left permanent employment and are new to the contracting world.
This is because it doesn’t always seem as much of a leap compared to other avenues, such as becoming a limited company contractor or a sole trader.
The umbrella route offers the added security found with traditional employment, such as holiday and sick pay, but with the many benefits associated with self-employment.
It’s ideal for those who long for more flexibility with a better work-life balance, but aren’t interested in the hassle and admin headache found with other self-employed routes.
How to choose an umbrella company
There are so many factors to take into consideration when choosing an umbrella company, but ultimately you want to go for one that is professional and trustworthy.
Here’s what you should be looking for:
- Do they provide a personal service?
A personal touch is always a good sign and having a go-to person who deals with all of your work makes communication so much easier. - Are they committed to you and your work?
Find a company that has a service guarantee where you know you’ll be looked after every step of the way. Do they have a promise as to how long they’ll take to answer calls and emails? It’s vital that you know you are in safe hands and that you’ll have any important questions answered quickly. - Good reviews
Whether it’s online reviews and testimonials or word of mouth, you need to get an insight into what people really think of the umbrella company you’re considering working through. - How long have they been in business?
You obviously shouldn’t presume that just because a company hasn’t been going for long, it’s not as good as others – every business has to start somewhere. But experience is key and knowing that a company has been going for a longer period of time is more likely to give you peace of mind that they know what they’re doing. - Do they have umbrella company awards?
Recognition for the work they do is always a good sign when it comes to choosing a good umbrella company. - Are they accredited by industry recognised trade bodies?
Whether it’s being an FCSA member, this is an additional layer of confidence for the supply chain.
Read our Advice on Choosing an Umbrella Company page for further information on this.
Tax avoidance schemes – red flags to look out for
You might have heard of HMRC’s campaign: ‘Tax Avoidance – Don’t Get Caught Out’, which is being used to warn the public not to get involved with such organisations
For the first time, HMRC has the power to name and shame those involved, compiling a list that includes tax avoidance schemes, promoters, enablers and suppliers.
Most umbrellas will be compliant with tax rules, however, it’s worth being aware of possible red flags to look out for when choosing an umbrella company.
For example, if:
- there’s a third party in the chain making the payment.
- the umbrella company claims that you’ll be able to keep more of your earnings than others.
- you’re asked to sign an annuity, loan or other agreement which involves a non-taxable element of pay.
If you use a non-compliant umbrella then you could find yourself having to pay penalties, as well as owed tax and interest, so it’s really not worth taking this risk.
If you believe that an umbrella company is non-compliant then you should report it to HMRC as soon as possible.
Our team of experts are available to answer any queries you may have, so drop us a line on 01442 795 100, email jaime.thorpe@dolanaccountancy.com, or contact us via live chat.