Umbrella or Not to Umbrella

[Paulr]

Hi Guys

First time poster, so please be gentle... I looked to see if there was a more appropriate thread for this, but I couldnt see one.

Ive been contracting for 7 months now, and decided for my first contract I would go umbrella as I was very worried about the black arts of ltd company and the paper work involved.

My day rate is not particularly high, enough to fund accomodation and travel etc, but by no means reaping the benefits of high rates.

Now however, after spending lots of time trying to understand how the umbrellas pay (and failing) and also seeing a massive difference in the take home pay promised and what I actually get I am becoming more and more dissolusioned with umbrellas. I understand the majority of your take home is made up of expenses of set against tax.. so I diligently send in expenses but it doesnt seem to make that much difference.. I am still only seeing about 60 - 70% of my day rate (70% on a good pay day), one month due to poor client payments and poor umbrella admin I lost 50%.

I only have 4 months left on this contract, there may be an extension but its too early to say yet.. so I guess my question is to you guys, should I go limited and taking on the knowledge I will have to pay an accountant regardless if im in a contract or not. (I have been thinking of a managed service Churchill Knight for example), to ease the pain of company tax etc.

Or, stay umbrella but switch.. in which case do any of you guys have any recommendations please ?

[Waldorf]

You do not mention your rate but the Limited company route is usually the better route.

Be wary of Churchill Knight, from what I hear they have too much involvement with your company, not being able to choose your bank etc. They also charge if you want to move to another accountant (not very reassuring) and there fees are very high, over £1500+VAT per annum I think.

Just check out the options, I use Nixon Williams but there are others recommended on here.

I have never heard anyone recommend Churchill Knight on here!

[LisaContractorUmbrella]

The only difference you should see between all the umbrella companies will be their fees and the level of service that you receive, you certainly cannot earn more through one than any other as your payments will always be processed through PAYE and the only expenses that you can legitimately claim will be those allowable under HMR&C regulations. If your daily rate is not particularly high I cannot understand how your tax home pay was reduced to 50% of earnings unless you received 2 payments in a single payroll period but your umbrella company should have explained the tax implications of that happening to you.

If you chose to set up a limited company your return will only be significantly higher if you are working outside of IR35; if you fall inside your earnings will still be taxed through PAYE

HTH

[Paulr]

The only difference you should see between all the umbrella companies will be their fees and the level of service that you receive, you certainly cannot earn more through one than any other as your payments will always be processed through PAYE and the only expenses that you can legitimately claim will be those allowable under HMR&C regulations. If your daily rate is not particularly high I cannot understand how your tax home pay was reduced to 50% of earnings unless you received 2 payments in a single payroll period but your umbrella company should have explained the tax implications of that happening to you.

If you chose to set up a limited company your return will only be significantly higher if you are working outside of IR35; if you fall inside your earnings will still be taxed through PAYE

HTH

Thanks for the replies guys, to clear up something Lisa said (Which was more or less spot on) re receiving 2 payments. Thats what happened although the client made 5 weeks payment in 1 go And as my umbrella had not sent in my employee details to HRMC, I was on an emergency code where the HRMC treated each individual payment like the first of the year.. e.g this payment is for xxx amount, this is what he gets paid every week, therefore £xxxxx * 52 = Footballer earnings (HRMC rubs hands in delight).

This went on for 7 months, and just last week the HRMC informed me they have been over taxing me due to my umbrella not providing employee details, needless to say i am a bit miffed as my family and I have been struggling these last 7 months. I will get a tax rebate, but only after fighting for it.

[LisaContractorUmbrella]

Thanks for the replies guys, to clear up something Lisa said (Which was more or less spot on) re receiving 2 payments. Thats what happened although the client made 5 weeks payment in 1 go And as my umbrella had not sent in my employee details to HRMC, I was on an emergency code where the HRMC treated each individual payment like the first of the year.. e.g this payment is for xxx amount, this is what he gets paid every week, therefore £xxxxx * 52 = Footballer earnings (HRMC rubs hands in delight).

This went on for 7 months, and just last week the HRMC informed me they have been over taxing me due to my umbrella not providing employee details, needless to say i am a bit miffed as my family and I have been struggling these last 7 months. I will get a tax rebate, but only after fighting for it.

Did you send in your P45 when you first joined your umbrella company because they should have forwarded it straight to HMR&C. With regard to the 5 weeks payment - that should have been processed through payroll as monthly earnings and not weekly as that would completely distort your earnings.

[Paulr]

Hi Lisa

Yes I did send my p45 in straight away, they confirmed they received it in fact, it just did not reach HRMC, which is worrying as its usually a straight forward process.

And once again you are right, the multiple weekly payments did distort my forecast earnings, which in turn really messed up my take home pay due to over taxing, but I must look to the umbrella to blame for that to. I just dont feel they are representing me at all, but just interested in the fee.. I feel they should be chasing the client for payment not me, as this is embarrasing and creates bad feeling.

In my heart of hearts I dont really want to go ltd, preffering the thoughts of a hassle free time, but even the umbrella solution has given me issues, these could be one of's or just bad luck though.

I just dont know how much i should expect realistically through an umbrella v Ltd.

Should I be looking at a return 75% as umbrella .. and 85% ltd or is this unrealistic does anyone have a rough idea ?

[LisaContractorUmbrella]

Hi Lisa

Yes I did send my p45 in straight away, they confirmed they received it in fact, it just did not reach HRMC, which is worrying as its usually a straight forward process.

And once again you are right, the multiple weekly payments did distort my forecast earnings, which in turn really messed up my take home pay due to over taxing, but I must look to the umbrella to blame for that to. I just dont feel they are representing me at all, but just interested in the fee.. I feel they should be chasing the client for payment not me, as this is embarrasing and creates bad feeling.

In my heart of hearts I dont really want to go ltd, preffering the thoughts of a hassle free time, but even the umbrella solution has given me issues, these could be one of's or just bad luck though.

I just dont know how much i should expect realistically through an umbrella v Ltd.

Should I be looking at a return 75% as umbrella .. and 85% ltd or is this unrealistic does anyone have a rough idea ?

Yes, your umbrella should be chasing payment for you.

Unfortunately your question about take home earnings is not that easy to answer as it is dependent on so many different factors. Basically, the significant financial benefit from a Ltd Co comes if you are working outside IR35 but, depending on your rate and expenses an 85% return is high and IMHO pretty unrealistic as a starting point.