What Does It Cost to Use An Umbrella Company?

What Does It Cost to Use An Umbrella Company?

Jan 07, 2021

The simple answer to this question is that it doesn’t cost you anything to use an Umbrella company.

An Umbrella company retains a small sum out of the total contracting income it receives from recruitment businesses for the work you have undertaken as an employee of the Umbrella company. The rate of the contracting income is usually agreed between yourself as the Umbrella employee on our behalf and the recruitment business.

This small sum is often referred to as a “retained income” or “margin” and is therefore not a fee or a charge to you, it is part of the Umbrella company income retained to cover the Umbrella company’s administrative, processing, bank charges and insurances costs.

Be very careful. Some Umbrella companies get this basic principle wrong and this can lead to HMRC investigations where this has been wrongly set up.

It is therefore very important that you look for an employer with many years’ experience and/or genuine expertise, one with for example in-house ICAEW or CIMA qualified accountants, and so avoid such mistakes ultimately impacting on you.

Even though there is no charge to you as an employee of an Umbrella company, you will nevertheless need to consider the points listed below as these impact on whether there will be less tangible costs to you as an employee of the Umbrella company.


Important factors which can “cost” you if you choose the wrong employer

  1. Is the umbrella employer a member of the FCSA, the established trade body for umbrella companies? If not the chance of non-compliance with the complex employment and tax legislation covering umbrella employment may result in increases in the risks to you, for example, unexpected tax assessments. Remember the golden rule, if it sounds too good to be true it probably is too good to be true.
  2. HMRC are now coming down harder than ever on tax avoidance. It is no use to argue you didn’t know you were involved in a tax avoidance scheme. For example, many workers have received big shocks after being tempted into “Loan Schemes” or other offshore schemes set up to avoid paying the correct tax. This link to HMRCs latest notes on avoidance is very helpful Use of marketed tax avoidance schemes in the UK – GOV.UK (www.gov.uk)
  3. Are you missing out on the best insurance? For example, will you benefit from free personal accident cover, including commute cover to and from your place of work, as a no cost-benefit of your employment?
  4. Are you missing out on additional free benefits and exclusive discounts enabling you to save money at places like B&Q and on workwear, PPE, and vehicle leasing?
  5. Will you get paid on time every time by an experienced team who know what they are doing? If not you may be having to chase your employer for your own pay or chase them to correct your pay.
  6. Is your employer financially strong? Employers who are less than three years old, or have unaudited accounts or micro company accounts, or a balance sheet with net assets no different to most single-person limited companies, will all have an increased risk of failure. In these difficult times, it’s so important for you to find a financially strong employer to minimise the risk of not receiving your pay.

To find out more about Crest Plus’ compliant, established, and expert Umbrella Company, click here or get in touch on 01244 684700.

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