Is there any difference between umbrella companies?

[sammywammy]

Hi, I've just joined this forum and I've got too many questions and don't know where to start.

I'll be starting my first contract position shortly and have decided that going through an umbrella company partly because I know nothing about the legal and accounting aspect of running a limited company and partly because I am not sure I will be looking to work as a contractor in the long-term.

I've looked around for umbrella companies through the links on this website and through the recommendations I've received and also had a look at some of the guides on this website. They seem to suggest that there is little difference between take-home pay between umbrellas and it would seem that I should expect a standard "salary retention rate" (if that's the correct term to use here) of about 60%.

My recruitment agency had told me that a rate of about 70% could be expected. Do you think this is simply through expense claims?

I understand that this company is not an umbrella company but they do appear to promise very interesting figures for take-home pay. Income Calculator | AM Limited (they also give a figure of about 65% retention rate for PAYE when I see more like 60% on most websites).

Am I missing something?

[ilovehr]

There is very little difference between umbrella companies

A true umbrella company pays it's employees via PAYE and therefore the only thing you can really use to compare them is the customer service standards and the fee they charge. If the company is operating as a UK umbrella then they can only offset expenses at the same amount as each other so beware any company that promises higher returns. The main rule is you can only claim for what you have spent.

AML are an offshore operation based in the Isle of Man using an EBT (employee benefit trust) as the payment vehicle. There are plenty of threads on here and other forums about the dangers of using this type of arrangment so I won't go into it here but the overwhelming response is to avoid them like the plague unless you are happy to bet your livelihood on the "opinion" of a tax adviser!

If you decide to use a UK umbrella, always remember you tend to get what you pay for.....

[malvolio]

Basically they all work to the same tax laws so will return the same net salary. If anyone is promising to deliver significantly more than that, they are either lying or putting you in the way of a tax investigation (your tax is your responsibility, not theirs; it's you that goes to court). Usually they do this by bending the rules on expenses and having you claim for things you aren't supposed to, or overstating them under the pretext of some "arrangement" they have with some mystery sky fairy.

You are doing the right thing by using an umbrella at this stage. Use one of the big ones, and make sure they are all telling you their gross fees for comparison (net fees can be very misleading). You don't know enough to take on the more imaginative solutions out there. You'll be on straight salary so returns of around 60% aren't that far out. You may look to get some more back in expenses, of course, so you recover some costs that normal employees can't, but don't forget you can't legally claim expenses you haven't paid out. As a result they should be tax neutral.

[LisaContractorUmbrella]

Agree. All umbrella companies pay through PAYE and as the allowances and percentages are all set by HMR&C there should be no difference between take home pay other than any difference in cost of fees. Any company that promises you a higher take home pay than another is not telling you the whole truth and you will either be disappointed when you receive your first payslip or you will find yourself with an additional tax liability at some point

[matzie]

Hi Sammywammy

I'm in a very similar situation and I chose to go with Parasol. I've been very happy with their service and their web-centric model sat well with me as a tech geek (although on the couple of occasions I've needed to call them, they answered quickly and were quite helpful). One time an issue needed a bit more discussion and senior people there back-and-forthed it for a while (search for my earlier posts to find the details) before eventually coming to a sensible conclusion. If an umbrella is right for you, and I agree with Malvolio that it probably is, then you could do worse IMHO.

Not sure whether I'm allowed to say this, but they will pay a referral fee of £100 if you chose to join them based on this recommendation - just quote my username 'matzie' at Refer a friend to Parasol - Parasol - but my reputation is far more important than money so I'll gladly remove this line if it's considered advertising - but in my experience with them, I've been impressed.

Thanks

Matt

[Spoiler]

Not sure whether I'm allowed to say this, but they will pay a referral fee of £100 if you chose to join them based on this recommendation - just quote my username 'matzie' at Refer a friend to Parasol - Parasol - but my reputation is far more important than money so I'll gladly remove this line if it's considered advertising - but in my experience with them, I've been impressed.

Thanks

Matt

Perhaps you could do the decent thing and offer to split the referral 50/50. Just a thought?

[Steven@Parasol]

Agree. All umbrella companies pay through PAYE and as the allowances and percentages are all set by HMR&C there should be no difference between take home pay other than any difference in cost of fees. Any company that promises you a higher take home pay than another is not telling you the whole truth and you will either be disappointed when you receive your first payslip or you will find yourself with an additional tax liability at some point

Completely agree with Lisa but would also add that a correctly structured umbrella company should provide a complete professional employment service for contractors which will include a full contract of employment, HR support, guaranteed hours of work, invoicing and timesheet management, tax and National Insurance contributions (PAYE and NICs) and statutory HMRC notifications.

A good contractor focused umbrella will also issue invoices on the your behalf, collect payments from clients/agencies, calculate tax and NI contributions and pay you your net pay direct to your personal bank account, without holding on to it. Better it earning interest in your bank account then in ours.

Be wary of claims such as ‘HMRC approved’ or ‘IR35 compliant.’ HMRC does not approve or accredit companies so this doesn’t actually mean anything. Neither does IR35 compliant in the context of umbrella companies as you will be taxed under normal PAYE as an employee.

Remember, if you aren’t happy with the services you are receiving you always have the right to leave and move elsewhere.