The umbrella company marketplace is saturated. Hundreds of payroll providers in the UK boast that they provide the best quality service for contractors and freelancers. However, with so many to choose from, how do you genuinely know which umbrella company is the best and which providers should be avoided at all costs? In this article, we provide some helpful tips to help you pick a dependable and ethical umbrella company for your payroll – to ensure you’re paid compliantly with HMRC’s rules and regulations.
The Freelancer and Contractor Services Association (FCSA)
While most umbrella companies operate compliantly, a few have made the headlines for the wrong reasons. Unfortunately, tax avoidance schemes and unethical umbrella companies still exist, putting honest, hard-working contractors and freelancers at risk of non-compliance. The call for the government to regulate the sector has never been stronger, and recent developments suggest that umbrella company regulations may be on the horizon.
While the sector remains unregulated, The Freelancer and Contractor Services Association (FCSA) is a self-regularly body dedicated to ensuring the temporary workers’ supply chain complies with UK tax law. Umbrella companies that the FCSA accredits have undergone a series of audits and assessments to check they operate compliantly and in the very best interest of their employees. The FCSA’s strict Codes of Compliance are available online, and any accredited member has successfully proven they adhere to them.
Umbrella Company UK takes compliance exceptionally seriously, and we are committed to providing a trustworthy and ethical service for all our employees. We are delighted to be an accredited member of the FCSA, and you can see our official FCSA listing here.
Despite being a relatively new certification in the sector, SafeRec has had a massive impact on umbrella companies and the entire supply chain. SafeRec Certified Umbrella Companies provide employees with a payslip audit every time a worker is paid, and the audit provides a breakdown of all the deductions that have been made, as well as confirming the net take-home pay is correct and no anomalies have occurred. This level of transparency is revolutionary and means that umbrella companies have nowhere to hide.
Contractors and freelancers in the UK who use an umbrella company are responsible for ensuring they pay the correct tax and National Insurance Contributions (NIC). Therefore, even if you engage with a non-compliant umbrella by accident, HMRC could hold you accountable, and you may be subjected to a severe penalty. By opting to use a SafeRec Certified Umbrella Company, you have access to proof that you are being paid compliantly, and this level of transparency is invaluable.
Umbrella Company UK is proud to be one of the first SafeRec Certified Umbrella Companies, and when you join us, you will be paid with the confidence that we have done everything compliantly and ethically. You will get an audit report with the proof you need. To find out more about our SafeRec certification, please read our article: Umbrella Company UK joins elite circle of Certified SafeRec Umbrella Companies.
Pay As You Earn (PAYE) and understanding how compliant umbrella companies operate
Compliant umbrella companies will pay all employees with Pay As You Earn (PAYE). PAYE is the government’s tax system for employees. Before joining an umbrella company, you must understand how compliant umbrella companies operate to allow you to pick a reliable provider and to know the warning signs of the non-compliant ones that you must avoid at all costs.
When you use an umbrella company, you will receive your net salary into your personal bank account, with all the legal deductions sent to HMRC on your behalf (including income tax and NIC). The only income that your umbrella should retain for itself is the margin they deduct (essentially the umbrella company’s “fee”).
Non-compliant umbrella companies operate in numerous ways. However, here are some of the common warning signs you should be aware of:
- Inflated take-home pay and promises of retaining “more than PAYE”.
- They may be difficult to contact via telephone.
- A website which doesn’t contain much information about how the umbrella company will actually process your payroll.
- The company is based outside of the UK in a well-known tax such as the Isle of Man, Channel Islands, Cayman Islands, etc.
- The company does not have an established trading history and was founded by an inexperienced director with little or no history in the sector.
- The government has issued the company with a Scheme Reference Number (SRN). For more information, please visit the government’s list of named tax avoidance schemes, promoters, enablers and suppliers.
For more information, please read our guide to help you spot a tax avoidance scheme.
Recruitment agency Preferred Supplier Lists (PSL)
Professional recruitment agencies will have a Preferred Supplier List (PSL) to help you pick an umbrella company that will provide you with a trustworthy service. If you are working through an agency, ask them for their latest PSL. However, it’s essential you pick an umbrella company you are happy with, and you should never feel pressured to use a provider you’re uncomfortable with. Therefore, if you like an umbrella that isn’t on your agency’s PSL, ask your recruitment consultant if they would be happy to add the umbrella.
Before joining an umbrella company, requesting a tailored take-home pay calculation is an excellent idea to discover your earning potential. Compliant umbrellas operate the same payroll processes and will pay you identically. Therefore, it’s important you review your take-home pay calculation to check that all figures are accurate and your net salary is realistic. If you notice anything unusual, query it immediately and do not register with an umbrella you are uncomfortable with.
It’s also worth discussing the registration process with the umbrella company and your responsibilities to ensure you are paid on time. For example, how do you submit timesheets? What are the best contact details if you have any questions?
Compliant umbrella companies will include a host of extras in their service, including Statutory Sick Pay and Maternity/Paternity Pay, comprehensive insurance cover (Employers Liability, Public Liability and Professional Indemnity), Same Day Faster Payments, and more. However, due to the competitive nature of the sector, some umbrella companies will offer little extras to encourage you to join them rather than a competitor. These may include access to an employee benefits scheme, an online portal to upload timesheets and view payslips, referral rewards if you recommend their service to friends and colleagues, and more.
While the government has yet to regulate the umbrella company sector, they have released several pieces of guidance to help the supply chain – especially contractors and freelancers new to umbrella payroll. Please check out the following guidance:
- Working through an umbrella company.
- Check if you are at risk of tax avoidance.
- Check your payslip if you work through an umbrella company.
- Check how to reduce your risk of using an umbrella company who operates a tax avoidance scheme.
- Tackling non-compliance in the umbrella company market.
- Current list of named tax avoidance schemes, promoters, enablers and suppliers.
Umbrella Company UK
If you are looking for an umbrella company you can trust, you have come to the right place. Umbrella Company UK is one of the fastest-growing umbrella companies in the UK. The FCSA accredits us, and we are one of the first SafeRec Certified Umbrella Companies. We are proud of our reputation and will always prioritise compliance and customer service.
If you are interested in requesting a free, take-home pay calculation, please click here or call our friendly Sales Professionals on 01707 669023.