If you work in the public sector as a contractor or freelancer, the chances are you may be required to use an umbrella company for your payroll. We’ll explain why this is the case and what you should look out for from providers to ensure you’re in safe hands.

Why do public sector contractors need to use an umbrella company?

Changes to IR35 legislation in April 2017 (called off-payroll in the public sector) resulted in public sector contractors no longer being allowed to determine their own IR35 statuses. Instead, it was down to the end-clients to determine whether their temporary workers were inside or outside IR35 and to ensure they were paid accordingly. This meant that hundreds of public sector organisations issued a ‘blanket approach’ to IR35 – stating all their temporary workers were inside IR35 – to avoid any potential repercussions from HMRC.

As a result of the changes in legislation, a large number of public sector contractors were advised that they could no longer take advantage of tax savings through a limited company and instead were better off using an umbrella company for their payroll. This is why so many temporary workers are now required or advised to use an umbrella company when working in the public sector.

Please be aware that off-payroll in the public sector is being extended into the private sector from April 2020.

What should you look out for from an umbrella company?

Choosing a compliant and reliable umbrella is important. Here are some of the important things you should take into account when deciding which umbrella company to use for their payroll:

  • Typically, contractors who use umbrella companies should expect to retain roughly 65-75% of their pay (PAYE). Any company offering you a higher take home pay figure should be avoided because they are probably a tax avoidance scheme.
  • Make sure the payroll provider you’re looking at is accredited by an industry body such as Professional Passport.
  • Will you have a dedicated Account Manager who will answer your questions quickly, if needed?
  • Do they have plenty of experience within the industry? Only choose a provider you can trust.
  • Umbrella companies are often promoting additional extras at no extra cost, such as Employee Benefits, discount schemes and free insurance. Have a thorough look at what is being offered.
  • An umbrella company will charge you a margin to use their service, usually £20 – £25 per week. Make sure the provider you are considering does not charge any hidden fees such as sign up and leaving fees.

Why should you contact Umbrella Company UK?

With over 20 years’ experience providing contractors with compliant payroll services, Umbrella Company UK is the first company you should call. Our friendly professionals are on hand and happy to provide you with a fast and free take home pay projection – tailored to your circumstances. We help hundreds of contractors working in both the private and public sectors. Please complete the short form on this page or give us a call on 01707 669023.

Are you looking for an umbrella company? We’re here to help.

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