How do I choose my umbrella company?

5 mins

Choosing the right umbrella company can be confusing for contractors and they often ask us how they should decide who to go with. This is a completely personal choice, but we do always point them in the direction of our preferred supplier list, however these are not the only companies on the market. 

In this blog, Finance Director Mike Hoyle explains why we have a preferred supplier list, what the risks are when choosing an umbrella company and the key things all Finance & Accountancy, Legal, Housing & Property Services, Actuarial and HR contractors should consider when choosing an umbrella company to work with.

Off Payroll Working:

From April 2021 both the Public and Private sectors will be treated equally when it comes to IR35 following the reform of the intermediaries legislation 'Off Payroll Working', Sellick Partnership have seen a number of new umbrella companies enter the market to win the business of contractors who are closing their personal service companies (PSCs). A lot of these companies are offering all kinds of headline benefits, including take home pay of up to 90 percent. As a business committed to our candidates, we would advise to approach these companies with caution, and research thoroughly before choosing an umbrella company to work with.

Sellick Partnership operate a preferred supplier list (PSL) of umbrella companies – these are Paystream, Parasol, Danbro, Giant and Workr Group. These umbrella companies are on our preferred supplier list because our finance department have audited and performed the due diligence to ensure that they have the necessary financial strength, correct insurances in place, and that they are operating within HMRC regulations.

Sellick Partnership requires the very highest standards when it comes to compliance – this is to protect both ourselves and our contractors.

So, what are the risks with using any given umbrella company?

The finance risks when choosing your umbrella company

With low barriers to enter the umbrella market, providers can appear and disappear overnight, taking contractor’s wages with them. Sellick Partnership will undertake a rigorous 3 year review of the umbrella company to ensure financial stability.

The tax compliance risks when choosing your umbrella company

This is very simple, 90 percent take home pay sounds too good to be true and…it is. The average take home pay under a tax compliant umbrella model is 65 percent to 70 percent, anything higher and it is highly likely there is either some tax evasion or at least some very risky tax avoidance going on. There should not be a difference in your take-home pay between umbrella providers, as they all need to make the same necessary deductions of Income Tax, Employer’s NI and Employee’s NI.

HMRC are currently very focused on the temporary labour market, they believe (with some justification) that there has been large scale abuse of opportunities to reduce tax. Previously they have issued spotlight publications on disguised remuneration, Managed Service Company (MSC), loan and job board schemes. It is clear that HMRC are keen to clean up this area of contractor tax compliance.

If contractors are caught using schemes such as these, there is firstly the professional risk and then secondly, it is likely the contractor will end up paying more tax than they would have done in the first place – for instance the tax, fines and interest accrued over the given time period. As noted above, some providers offering high net pay retention models will choose to simply close the company promoting these high risk models and disappear if there is a tax issue, leaving the individuals to deal with the fallout. It should be noted that an investigation could come several years later and could cost the contractor tens of thousands of pounds.

Further evidence of the government’s attitude towards these schemes is shown with the introduction of the Criminal Finances Act 2017 which came into effect in September 2017. This legislation means that if an agency knowingly allows the use of high risk tax schemes, then they can be found criminally liable.

The insurance risks when choosing your umbrella company

Umbrella companies offer insurance to contractors as part of the package. Contractors need to ensure they have the appropriate insurance cover for their role, both in terms of the type of work and the level of cover. For instance, if you are a Chartered Accountant, then the umbrella company must evidence that they are insured to a minimum of £5,000,000 for finance professionals.

Sellick Partnership require a minimum of £5,000,000 professional indemnity insurance from umbrella companies as that is what our clients require. Without it, it is not possible to use the umbrella company.

Please note that the level of this PI requirement may vary based on your individual role and therefore you should always check this cover with your umbrella provider.

The advantages of choosing an umbrella company on our preferred supplier list

First and foremost it negates the risk mentioned above, but in addition to this:

  • You are covered with sufficient insurances: all umbrella companies on our PSL cover your Professional Indemnity to £5,000,000, Public Liability to £5,000,000 and Employers Liability to £5,000,000.

  • You have peace of mind that your umbrella company is working within HMRC rules and regulations.

  • You are getting the best benefits, these include: private healthcare, personal accident cover and discount shopping schemes.
Choosing the right umbrella company will save you time and reduce administration

Sellick Partnership have close working relationships with Paystream, Parasol, Danbro, Giant and Workr Group that enables us to reduce the weekly admin for our contractors, for instance:

  • We will chase the umbrella company to accept the agency contracts.
  • We request weekly invoices so contractors do not need to complete two timesheets.
  • Some of our providers offer an earlier weekly payment.
  • In emergency situations we can arrange advances free of charge.

You can find our preferred supplier list here.

Hopefully the above can help you understand the risks and benefits associated with using an umbrella company; there is an overwhelming amount of information available online, and it can be difficult to filter through the different companies. Ultimately, Sellick Partnership is doing the best we can to ensure that our contractors, and us as an agency are not at any type of risk, whether that is financial, tax related or insurance risk.

If you have any further questions on the use of umbrella companies or our PSL, please speak to your Sellick Partnership Recruitment Consultant or get in touch with us!