Many contract workers have weighed up their options between PAYE agency, limited company and umbrella company and decided that the latter is the best one for them.

After all, there are many benefits to working through an umbrella company. This route allows the contractor to avoid infamous IR35 legislation, takes away the stress and hassle of running their own business and gives them the security of a salary whilst allowing the freedom and flexibility to choose which contract work they take on.

If you’ve decided that an umbrella company is the best route for you, there are some key considerations you will need to account for, such as how much your chosen provider will take in fees.

To help, in this guide, Umbrella Broker outlines what percentage an umbrella company takes, so you can make an informed decision over whether this is the best option for you.

How does an Umbrella Company charge its fees?

Let’s start by explaining how an umbrella company charges its fees, as this can have a big impact on how much the contractor will end up paying.

This is because umbrella companies can charge their fees either as fixed fees or percentage fees.

A provider that charges a fixed fee will take a set amount from the contractor. For example, this could be £25 every week or £100 every month.

A percentage fee, on the other hand, is when the umbrella company takes a percentage of the contractor’s invoice amount. For this reason, if the contractor begins working on a high-paying contract, they will begin to pay more to the umbrella company in fees.

The problem, however, is that they will still be receiving the same service level in return. For this reason, most contractors prefer to pay a fixed fee, as it means they won’t pay more if they earn more.

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How much do Umbrella fees cost?

That’s how the umbrella company charges its fees, now we will look at how much you can expect to pay in fees.

Although umbrella company fees vary from provider to provider, and will depend on the level of services you require, contractors can expect to pay an average of £20-5 per week.

How do Umbrella Companies collect their fees?

Usually, the umbrella company deals directly with the end client on the contractor’s behalf, meaning they will take their fee from the fee you will be paid by the client.

The great news for contractors is that the umbrella company deducts their fee before the contractor’s salary is processed through the PAYE system, meaning you will pay less tax.

Are there any hidden costs?

In general, the umbrella company charges their fees for a range of services, which include:

  • Admin and paperwork for the contractor
  • Invoicing the client
  • Collecting the contractor’s fee, processing it through their payroll and deducting the correct levels of tax and National Insurance before paying the contractor
  • Providing the contractor with statutory benefits, which includes a workplace pension, sick pay, holiday pay and maternity and paternity leave
  • Providing the contractor with the required types of insurance

Although these are standard services provided by the company, it is worth noting that some umbrella companies can also charge additional fees, which can mean that the contractor ends up paying more than expected.

Hidden costs can include:

  • Sign up fees
  • Exit fees
  • Fees for certain admin work or expense processing
  • Fees for same-day payments

Is there anything else to look out for?

It is important to avoid umbrella companies that claim to be more tax-efficient. This is because contractors must always pay income tax and National Insurance on their earnings, so your take-home pay should be the same regardless of which umbrella company you work with.

Red flags that contractors should look out for include:

  • Any umbrella company that will pay only a part of your salary through the payroll in order to pay less tax
  • Any umbrella company that will pay you through an offshore structure
  • Any umbrella company that pays you through loans, credit or investment payments
  • Any umbrella company that routes payments through other companies

Paying the contractor in any of these ways means that the contractor is avoiding tax which can lead to fines and penalties. After all, it is the contractor’s duty, not the umbrella companies, to ensure they are fulfilling their tax obligations.

How to compare Umbrella Company fees

Contractors inevitably want to find a good deal when it comes to umbrella fees, so how can you compare how much you will pay?

A great way is by using an umbrella company calculator, such as Umbrella Broker’s.

Our contractor calculator helps contractors find the best umbrella company based on their preferences and requirements, as well as showing how much you will pay in fees to each.

We will show you a list of umbrella companies, outlining exactly how much you will pay in fees to the company and what you will receive in return. That means you can make a well-informed decision whilst getting the best deal for you.

Ready to give it a go yourself?

 To try out our umbrella company calculator today, simply head over to our handy tool, enter your key information and we will do the rest.

In a matter of just 60 seconds, we will show you a list of umbrella companies best suited to your needs, showing you your payslip, the services you will receive and how much you will pay to the company in fees.

We take the hard work out of finding your perfect umbrella company, so you can rest assured you’re making the right decision for you. Ready to try it out today?

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