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Umbrella Company Guides

Guides for Umbrella Company and additional information


Working alongside an umbrella company may seem to some individuals like a long process, however it is a simple route. We have provided a guide on how they work with their fees and costs. Different companies will have different services, and as a result costs vary.

An umbrella company are companies who functions as an employer to agency contractors who work under a fixed term contract assignment, tends to be through a recruitment employment agency. A contract is signed between the umbrella company and recruitment agency or client, in support of the contractor who will be executing the assignment.


The umbrella company provides a payroll system to the employees, operates all time sheets and invoices, and pays its employees a salary after allowing for deductions. You can get back the cost of any legitimate business expenses you sustain as a contractor, however what you can claim concludes on whether your contractor is under the SDC (Supervision, Direction and Control) of your client. If the employee’s contract work is caught by the SDC rules, they will not be able to claim back the costs of travel and maintenance.

If you’re not sure if your contract falls under the SDC rules that took effect from April 2016, you can take a glance at the background to help you have a better understanding. Click there below.

Here are a few simple steps on how umbrella companies work and how you would be involved if you join them:

  • When you have confirmed the contract role, the umbrella company (like your ‘employer’ would sign a contract with your recruitment agency to confirm everything.

  • You (contractor) will also sign a contract of employment, but with the umbrella company.

  • When the employee has arranged in advance a time on site, the employee will complete a time sheet and forward it onto their manager to sign in.

  • The employee will submit their time sheet to both the recruitment agency, and the umbrella company allowing them to see how many hours you have worked in a week or month.

  • At this time of the process the umbrella company will invoice the recruitment agency, which subsequently bills the end-client.

  • After the umbrella company receives the payment from the recruitment agency, the will then go forward preparing your payroll.

  • As mentioned previously further up the page, the umbrella company will now process your payroll, and pay you a salary, with deductions with taxes (income tax and national insurance), the arranged in advance umbrella payment, including any more necessary deductions for example, VAT. Furthermore, the umbrella will pay you back for specific allowable expenses you have claimed for example – travel and training. When looking a travel, you can claim the cost of travel to and from your place of work. You can also claim for parking and congestion charges. When looking at training, according to HMRC legislation, an expense cannot be deducted under the general rule for employees’ expenses in Section 336 ITEPA 2003.

  • When the end of the tax year comes approaching, you can claim back the cost of any expenses left in opposition to your income tax bill.

Advantages of Umbrella Companies

It is important to know about the benefits of something, so here’s a few points below to look at regarding the advantages of an Umbrella Company.

  • The main factor contractors enjoy about using umbrella companies is the fact that all your tax and NI is finalised by the umbrella company prior to you receiving your money. As a result, the contractor would not need to stress about calculating their tax.

  • Easy to use, the contractors using umbrella companies directly send their time sheets and expense claims to the umbrella companies and halt to be paid.

  • The umbrella companies are useful for the contractors who have short and long-term contracts who want minimal input.

  • Other than the time sheets and expenses claims, there is minimal amount of paperwork to be accomplished.

There are many reasons as to why umbrella companies are beneficial to contractors, but those are a just a few of the main benefits.

Choosing an Umbrella Company

When looking at umbrella companies, it may be a difficult decision to make for which company to go forward with, however it is important when looking to find out if there are any hidden costs or penalty charges for joining and leaving the umbrella company. Word of mouth tends to be a great tool when making your choice, however you should be aware that reviews on company websites are not always authentic statements.


To summarise, when looking to use an umbrella company if you are still not sure of who to go forward with, compare with our specialist payroll comparison service by clicking here.  

As mentioned previously, each company will offer different services to your needs, so we strongly advise to take time and choose wisely who you feel most comfortable with. If you need any further assistance, please do not hesitate to contact us on 01462510900 or simply email us on , and we will get in touch with you ASAP.

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