What does an umbrella company do?

So we’ve been asked to explain in simplistic terms what an umbrella company does! So here goes…

Working via an umbrella company is an alternative to operating your own Ltd company. It was deemed an option that required minimum hassle, minimum paperwork and ensured all taxes were paid at source under PAYE.

At Clarity, we run payroll for individuals who are working on a temporary assignment with a client, but wish for their taxes to be taken care of and to work under a contract of employment giving them statutory employment rights.

In April 2020, the way in which end clients engage with contractors is about to change (applicable to medium / large businesses). This is covered under a piece of legislation called IR35. If the end client deems an individual is akin to an employee, then HMRC expects them to be paid as an employee ie paying PAYE taxes, not drawing dividends!

Working via an umbrella company, the brolly is deemed the employer and the end client’s liabilities for tax are negated.

The contractor, should I say employee, is employed under a contract of employment, receives a payslip everytime they are paid, and at the end of the employment they will receive a P45, as per standard employment.

BUT, working via an umbrella company is not exactly the same as normal employment, so you will need to ensure that you know exactly what you are getting before you sign up.

For more information on understanding your take home through an umbrella please click here.