Umbrella Company FAQs

Why am I paying Employers NI?

An umbrella company is an employer and, as with any other UK employer, they have a legal obligation to pay employer’s national insurance contributions to HMRC.

You are employed by the umbrella company under an over-arching contract of employment. The umbrella company then enters into a business-to-business contract with the recruitment agency or client.

An invoice is raised by the umbrella for the hours/days you work; this is then issued to the agency/client. Payment is made to the umbrella for the value of the invoice and they then pay the employer’s national insurance contribution from the contract amount received. The umbrella will usually retain a margin from that contract rate for processing the payments. The balance is your taxable salary; this is then subject to deductions for income tax and employee’s national insurance as with standard employment.

This model is the same for all compliant umbrella companies, as we all have to comply with the regulations, which surround PAYE.

I have a contract overseas, can I use your umbrella company for my assignment?

The first thing we would need to know is where you are tax resident; in order for you to work with a UK umbrella company you would need to be tax resident in the UK as all payments are made through PAYE.

If you at any point you become tax resident elsewhere then unfortunately your taxes will more than likely be due in that country. For most countries you can work abroad for a period of up to 6 months (180 days) after which time your tax residency will change to the country you are residing in. It is also worth noting that if you go over the 180 days, then taxes may also be due in the country in which you are working, so you may end up being dual taxed. Simply returning home for a matter of weeks and then returning to the same client under the same role will not suffice in breaking the 180 days.

Please note that there are certain countries that we cannot engage with due to their complex tax systems, at this point please do get in touch and we can refer you to a business that may be able to help.

Can you sponsor my VISA?

Unfortunately, visa’s can only be sponsored by the company for whom you will actually be performing the work; as an umbrella company is an intermediary, they are not permitted to sponsor visas and therefore we would not be able to assist you.

Do I get holiday pay when I work via an umbrella company?

As an employee of Clarity Umbrella Ltd, you are entitled to 28 days holiday each financial year (per annum pro rata) and, under the Working Time Regulations. Any holiday pay allowance must be shown on your payslip when you take annual leave we will not include it within your pay rate.

As standard holiday allowance is taken at 12.07% of your taxable salary. This is taken from your contract rate and will be repaid every time we make a payment to you. You need to be aware that under this option, there will be no retained holiday pay available when you do take holiday with us.

There is however an alternatively… we can retain a holiday allowance under your instruction at which point we will set up a holiday pot for you. Under this option you can retain holiday each time we pay you and then reclaim it as and when you require. Please note if you choose this option then holiday pay is taxed at the point it is retained, and not at the point it is repaid.

Any holiday pay deducted during your employment will remain your money and it can be reclaimed as holiday days on your timesheet for any days you are contracted to work, but didn’t. Once you submit a holiday request, your holiday pay will be included with your next invoice payment following that period.

Any unused holiday pay will be refunded to you either when you leave or before the end of the financial year, whichever comes first.

How much do you charge?

That depends on whether your agency is looking to make payment to us on a weekly or monthly basis. If you work via Clarity our margin is £25.00 for a weekly payment and £95.00 on a monthly basis. Our margin is only seen as and when we make a payment to you. We do not have any sign up or exit fees; neither do we have any hidden costs so you will know exactly where you stand.

Included within our margin is a comprehensive £20m insurance package, giving you a cover of £10m for Employers Liability, £5m Public Liability and £5m Professional Indemnity.

How do you work out my Take Home Pay?

In terms of calculating your take home, you must understand the difference between your contract rate and your taxable salary. Your contract rate is more than likely the figure that you have been provided by the agency or end client. This is the monies that are invoiced to the agency / end client and paid to us, the umbrella.

We take the contract rate (the gross figure) and then deduct the Employers NI, make an allocation for the Apprenticeship Levy and our margin, after deductions what remains is your taxable salary. As with standard employment this is then subject to Employees NI and PAYE tax. 

When negotiating your contract rate you must take these deductions into account before agreeing on a figure. If you need some advice on your take home based on your agreed contract rate then please click here.

When will I get paid?

Here at Clarity, we run our bank statement every working morning. Assuming that the agency / end client has released funds and they have cleared into our account at this point then you will be paid the same day. All payments are made via Same Day Fast Pay, so funds should clear into your account by close of business that day.

Why do Take Home Pay calculations differ?

Any calculations provided by Clarity use the standard tax code for the year, unless you request otherwise, we will also assume that you fall inside of IR35. Any figures provided are estimates and on occasions your circumstances may affect your final take home figure.

Take home will differ if your earnings to date are high or low, if your tax code is different to that provided in the calculation, if this is not your primary employment, your working hours vary on a weekly basis.

Do you allow Travel & Subsistence expenses?

The simple answer is no, not for tax relief purposes! Please note that changes to legislation introduced in April 2016 restrict contractors claiming Travel & Subsistence expenses unless they can prove that they are not under the Supervision, Direction and Control (or the right thereof) of the end client.

Here at Clarity, we will not process any expenses for tax relief purposes as were previously allowable. However, if you believe you are not under the Supervision, Direction or Control then we would highly recommend that you speak directly with HMRC and allow them to confirm your individual situation. For those who receive confirmation in writing from HMRC stating they are not under SDC by the client, will be able to claim tax relief via self-assessment at the end of the financial year. 

It is also our interpretation that if you are deemed inside IR35 due to Public/Private Sector rule changes, then we believe that the legislation is highly likely to deem that you are under SDC, and as such no expenses will be allowable at all. So if you do come across an umbrella offering to increase your take home through tax relief on expenses, then take a moment to consider that if these are not deemed allowable by HMRC, then you will be liable for any unpaid taxes, not the umbrella company.

What if my end client is offering to pay expenses?

Your client is free to pay for your expenses for you during your assignment, but we will check to confirm that these expenses have actually been incurred. These are known as “chargeable expenses”. You will have to provide us with receipts to confirm that the expenses were incurred during your assignment and that they match the amount submitted on our systems.

From time to time an end client may give a daily allowance for expenses. In this scenario we would review the expenses you had actually incurred each day and if there was any additional funds left over as an unspent allowance then this will be added to the payroll and taxed as additional funds.

Do I have to be enrolled into your pension scheme?

As an employee of Clarity you will automatically be enrolled into the Nest Pension Scheme. This is now a legal requirement for any employers.

Please note you will not be enrolled until after the third month of employment, unless you wish to contribute from the outset. You will have the option to either contribute to the scheme via salary sacrifice or if you choose to, you may opt out of the scheme which can be done online via your Nest Account.

Our pension scheme offers you flexibility throughout your assignment. We can make standard auto enrolment deductions, percentages of rate, which is great if your rate changes on a regular basis, a fixed lump sum or alternatively we can arrange for maximum contributions to be taken. With the maximum contribution option, we can make payments into the scheme up to any amount as long as we ensure that we net you National Minimum Wage in your pay packet.

Please note all payments to the pensions scheme are made via salary sacrifice so you see the National Insurance and tax benefits on any payments made. Should you reach the annual maximum threshold for pension payments, you can continue to make further payments to the scheme, but it is your personal responsibility to inform HMRC via self-assessment at the end of the financial year at which point additional taxes may be payable direct to HMRC.

Why do I have to have an ID Check before I can receive funds?

As employers, umbrella companies have a responsibility to ensure that their employees are legally entitled to work in the UK and, in so doing, should provide assurances to their recruiter partners. The “Code of Practice on Preventing Illegal Working” means that our processes are up to date to ensure compliance.

The Right to Work checks are completed with every new starter in accordance with the Home Office guidance. We will receive original ID for all contractors and then either meet in person to verify or we will conduct an ID check via video link as agreed with the Home Office.

No invoices or payments will be issued until the ID check is completed.

What if I want to leave an umbrella company I am employed through?

You will need to check through your contract of employment to confirm what notice period is required. As an employer, the umbrella company should state what the requirements are in order for you to leave their employment. You will need to provide a notice letter, stating that you wish to terminate the employment and requesting a P45. The P45 will need to be supplied to your new employer wherever possible. At the end of your employment you will be able to move umbrella companies, however always make sure that you inform your agency or end client that you require no further funds to be paid over to that umbrella. If you do not make the agency / end client aware of the changes, then you run the risk of monies being delayed whilst refunds are processed.

Am I insured whilst working under an umbrella company?

Included within our margin is a comprehensive £20m insurance package, giving you a cover of £10m for Employers Liability, £5m Public Liability and £5m Professional Indemnity.

Once you have registered with us, we will ensure that your agency or end client receives copies of all of our documentation, this will include insurance documents, copies of our incorporation certificate, VAT certificate and bank details.