An umbrella company is a company that employs individuals who work on fixed term temporary contract assignments as an alternative solution to them setting up their own limited company. The umbrella company will employ the individual under an overarching employment contract which enables the individual to work through any number of recruitment agencies or end clients to secure assignments.

In a word – convenience.
Working through an umbrella company will be quick to set up (providing you supply the paperwork provided to prove you can legitimately work in the UK) and generally requires less administration, responsibility and cost when compared to having your own limited company. All administration surrounding the mechanics of you getting paid is undertaken by the umbrella company. There are also the benefits of being employed and receiving statutory payments if you can’t work as well as opting in to a workplace pension to save for your retirement.

Some umbrella companies have joined together to form associations and promote themselves as accredited umbrella companies. We work with some of these umbrella companies but prefer to do our own additional vetting to ensure that your money is in safe hands.

When you sign up with an umbrella company they will reach out to your recruitment agency with their contract for service and compliance pack. This pack details all the information a recruitment agency for both payroll departments to work together to arrange funds to be transferred and your payment arrive in your bank account.

Once you have been onboarded and are working on your assignment, the umbrella company needs to know the hours you have worked and your rate. The umbrella company will receive this information either directly from you or from your recruitment agency. An invoice will then be raised from the hours supplied and sent over to your recruitment agency, or if you are working directly for an end client it will be sent to them. Funds will be received by the umbrella company from the recruitment agency or end client, which correspond to the invoice that has been sent. The umbrella company identifies the funds against the invoice and then runs the payment through the PAYE system. Tax is calculated and a RTI is issued and the outstanding funds are paid to the employee/contractor. RTI is the system that the umbrella uses to notify HMRC of the tax calculated on your payment.

Ordinarily you wouldn’t have to do this as your tax and national insurance contributions are deducted at source. However if you are contacted by HMRC to complete a self assessment then you are obliged to complete a self assessment form.

be the case in your situation. The tax code is made up of several numbers and letters. The current tax code for most people who have one job is 1257L. The numbers in the tax code tells the umbrella company how much tax free income you get in a tax year. The tax code is provided by HMRC who works out your individual number based on your tax-free personal allowance and income you have not paid tax on (such as a second job or untaxed interest). The letters in your tax code refer to your situation and how it affects your personal allowance. The most common tax codes are:

L – You are entitled to the standard tax-free Personal Allowance

M – Marriage allowance where you’ve received a transfer of 10% of your partner’s personal allowance

BR – All your income from this job is taxed at the basic rate

DO – All your income from this job is taxed at the higher rate

If your tax code has “W1”, “M1” or “X” at the end then you are on an emergency tax code.

A number of umbrella companies no longer process expenses unless they have been expressly agreed with the agency and the funds for these expenses are being forwarded by the recruitment agency.