With changes to IR35 set to come into motion from April, many limited company contractors will be considering making the move to an umbrella company. Or, perhaps you are new to contracting and have decided that the umbrella route is best for you.

Whatever the reason for choosing to work with an umbrella company, it is an option that has become increasingly popular amongst contractors. As more contractors choose to operate through an umbrella company, the number of companies out there has rocketed, each claiming to be the best company for you.

Why work with an Umbrella Company?

Contracting through an umbrella company gives contractors many benefits they wouldn’t receive if they were operating through a limited company.

As the umbrella company employs the contractor, they in turn receive statutory rights, including sick pay, holiday leave, a workplace pension and maternity or paternity leave. What’s more, the umbrella company pays the contractor a salary, deducting their tax and National Insurance through the PAYE system.

This means that unlike limited company contractors, umbrella contractors aren’t faced with tricky tax calculations and don’t need to file for self-assessment.

What’s more, umbrella contractors do not have the responsibilities of setting up and running their own limited companies and therefore don’t have to deal with the admin and paperwork that comes with this.

Another benefit of working with an umbrella company is that they will also cover contractors with Umbrella Companies Professional Liability & Professional Indemnity Insurance, meaning their compulsory Insurance requirements are taken care of.

In exchange for these benefits the contractor will pay a fee to the company. Although this is an additional cost, the umbrella fee is considered a legitimate expense by HMRC and is therefore deducted before your pay is processed through PAYE.

Those are the benefits of working through an umbrella company, so how can you find the best one for you?

Look at what each company is offering

Every umbrella company is different and will offer different services and benefits to contractors. That’s why it’s so important that you compare and contrast companies to ensure you choose one that is best suited to your needs and preferences.

Umbrella Broker’s handy umbrella calculator allows contractors to compare companies based on their personal preferences, whether that is IR35 compliance, help with childcare credits or more money. Whatever your requirements, to find the best umbrella company for you always look at the services and benefits they offer.

Compare Umbrella Company fees

As we have mentioned, every umbrella company charges fees in exchange for the services they offer to contractors.

Umbrella fees are charged either as flat-rate fees or percentage fees. A flat-rate fee is charged as a set amount, typically taken weekly or monthly. A percentage fee on the other hand is based on a percentage of what the contractor is earning. So, if you take on a higher paying contract, you will pay more in umbrella company fees.

Clearly, how the company charges their fees can have a big impact on how much you will pay. That’s why it’s important to always compare umbrella company fees and check how they are charged, so you can get a fair deal.

Check insurance cover

Contractors are required to be covered by certain types of insurance cover. For this reason, many umbrella companies will offer professional indemnity and public liability insurance which, although not legal requirements, are usually a requirement of the contract.

When choosing an umbrella company, it is therefore worth checking what insurance cover they offer. If they do not provide this, it is worth remembering that you will need to pay for it out of your own pocket.

Certain contracts also require specific kinds of insurance. If this is true for you, you should focus on looking at umbrella companies that can offer this level of cover. 

Look for any further fees

Some umbrella companies will charge additional fees on top of their fixed or percentage fees. These can include:

• Sign-up fees
• Exit fees
• Extra fees for insurance
• Extra fees for processing expenses
• Extra admin fees

When comparing umbrella companies, it is always worth seeing whether the umbrella company will charge any of these additional fees as again, this can have a direct impact on you.

Check on the company’s reputation

Not all umbrella companies are created equal. While most umbrella companies are trustworthy and have your best interests at heart, some unfortunately don’t.

That’s why when choosing an umbrella company, it is always a good idea to do your research and check they are reputable. This can be as easy as performing a quick Google search and reading some reviews on the company. You can also find out key information such as how long the company have been operating, how many contractors they work with and their credit rating.

It is also worth checking whether the company is registered with the Freelancer and Contractor Services Association, meaning their operations, policies and processes meet strict standards.