What is an Umbrella Company? An umbrella company is a business that contractors and freelancers can work through for assignments, as an alternative to setting up a limited company.
How does an Umbrella Company work? An umbrella company employs contractors, giving them the freedom to work on different contract assignments, whilst paying them under PAYE. In this way it offers a simple solution that is fully compliant with IR35.
Why do I need an Umbrella Company? Working under an umbrella company is just one option open to contractors, but is popular among those captured by IR35 by offering a cost-effective and fully-compliant way of getting paid on a PAYE basis.
Do I have to be paid through an Umbrella Company? No. You don’t have to be paid through an umbrella PAYE solution, but if you are permanently IR35 captured it may be your best solution.
How do I join an umbrella company? Joining an umbrella company is easy. Once you have found an organisation offering umbrella solutions – such as Brookson – you just need to gather the appropriate documents and complete a simple onboarding process.
Does IR35 apply to an Umbrella Company? No. IR35 legislation applies to individuals who provide their services via a limited company.
How much tax do you pay under an Umbrella Company? As an umbrella employee, you are taxed at the same rate as any permanent employee: 20% if you earn within the basic rate tax bracket, 40% if you earn within the high rate tax bracket.
What is PAYE and how does it operate? PAYE stands for Pay As You Earn. It is a method of paying income tax and National Insurance contributions and is used by all employers operating a payroll in the UK.
How does an Umbrella Company work out my take home pay? Umbrella companies pay employees using the standard PAYE system, calculated the same way all employee tax is in the UK. This is applied to your salary after their margin and employer costs have been removed from your gross contract rate.
What are the benefits of an umbrella company? Typically, the costs of working through an umbrella company are less than running a limited company, although without the tax advantages. For any contractor captured permanently under IR35, it can be the best way to work in compliance with HMRC guidelines.