What are Contractor’s Umbrella Companies?

Umbrella Companies are set up to pay individuals under PAYE rules but have the advantage over standard PAYE payments as they allow the offset of business expenses on a weekly basis. This can be an advantage to certain individuals if they have high business expenses.

The Umbrella company is simply the company that you join as an employee through which your wages are paid and the Umbrella company is responsible for paying your PAYE tax and NI contributions direct to HMRC.

What are the benefits of an Umbrella company?

Being paid through an umbrella company allows you to offset business expenses against your income on a weekly (or monthly basis). In this way you can claim tax relief for your business expenses at the earliest opportunity increasing your take home pay.

Typical benefits available from an Umbrella service include: detailed pay reports; tax advice; accident cover whilst you are at work; and Public and Employers Liability insurance.

How do Umbrella companies work?

You would become an employee of an umbrella company and this enables you to claim tax relief on your business expenses. Statutory employee deductions such as NIC and tax will be made from your gross income, as will the provider’s processing fee.  The provider would also identify your holiday entitlement on your payslip. They then offset your business related expenses, which you have submitted, against your income to calculate tax relief. Using an Umbrella solution can, in many cases,  increase your take home pay compared to being paid through a standard PAYE scheme.