10 questions a newbie contractor should ask an umbrella company

10 questions a newbie contractor should ask an umbrella company

So having decided to go with an umbrella company, the next problem is to choose one. There are many to choose from and you need to do some research.

The following list of questions will help you decide which ones are those you can trust with your income; especially if you already know the “right“answer.

How many clients do you have?

Although by no means a guarantee of good service, clearly if they have a lot of clients they must be doing something right, they must have been around a reasonable length of time and be fairly stable financially.

How do you calculate your fees?

Be wary if they base their charges on your contract rate as opposed to simple weekly or monthly fees. They do the same amount of work no matter how much you are earning, so ideally they should charge a flat rate.

How much are your fees?

On the face of it an obvious question, but some will quote gross fees and others net. Fees are in effect a taxable expense, so can be quoted either with or without extracting the tax element. Neither is wrong but post-tax quotes are dependent on your exact tax position and may vary over time, so gross fees, although apparently higher, are more reliable indicators. Be sure you are comparing like-for-like.

How will you pay me?

Many will use BACS payments into your personal account, which can take a few days to process and clear. Some use CHAPS for near-immediate payment, although you may have to pay extra for it. Hopefully not many will use paper-based payment systems these days.

How often will you pay me?

Weekly is good, monthly is acceptable, any more than that is not. Ensure that you get paid against your proof of work done; it is not your problem if they or the agency have not been paid by the client.

How much will you pay me?

The usual rule is that the umbrella will take your gross income, deduct their fees and any allowable expenses and calculate your PAYE and NICs on the balance. As a rule of thumb, you will be lucky to keep much more than 70-75% of your gross unless you are paying out quite a lot above average on expenses. You are, after all, being taxed as a normal employee, using the same rules. If the umbrella is saying something significantly above this level – 85% is the usual offer – and can’t explain how, or start talking about expenses, walk away.

What about late payments?

Be very sure you understand what your contract with the umbrella says on this subject, what the actual contractual payment terms are and who is responsible for chasing up outstanding amounts; not all umbrellas will do this on your behalf.

What about expenses?

Be very wary of any umbrella that starts quoting “dispensation schemes” and “HMRC Approved expenses”. They may well have these, but they are to do with their business, not yours. You can claim any expenses the umbrella will allow you to; these will usually be all those associated wholly and exclusively with doing the job and those rules are the same for all freelancers. Some umbrellas may have set amounts for certain expenses such as overnight stays, but at the end of the day you are personally responsible for paying the correct amount of tax, and can only claim for money you have actually spent. Be certain you know the umbrella’s position on this whole area and walk away if you have any concerns.

What other extras will I be charged for?

Employers’ NICs will be deducted by the umbrella (usually their charge to the agency/client will have a small uplift to cover this cost). Because of various employment rules and regulations, the umbrella must also make provision for things like holiday pay and pensions. You may need insurances such as Professional Indemnity; if these are provided by the umbrella they may be chargeable. Make sure you understand what additional charges will be made. At the end of the day, everything will come out of your gross contract income.

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Image: bizi on the phone by achichi

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