How to find a compliant umbrella company

It’s more important than ever to ensure you use compliant umbrella companies. A recent report by the LITRG found there are over 500 umbrella companies in the UK. With so much choice, how do you know which providers are operating ethically within the market? Keep reading, and we’ll summarise the importance of using a compliant umbrella company and provide some tips to help you find a provider you can trust. 

Why is it important to use a compliant umbrella company?

Over the years, HMRC has introduced legislation to try and stop tax avoidance, including the 2019 Loan Charge. Unfortunately, tax avoidance schemes are still very operational within the UK. For example, the BBC has recently reported on mini umbrella company fraud (MUC) because unethically motivated third parties (MUC) were paying COVID-19 testing centre workers.

If you use a compliant umbrella company for your payroll, you’ll be paying the correct amount of tax and National Insurance Contributions (NIC) to the government. The umbrella will ensure all the deductions to your pay are correct and that you’re protected with employment rights. However, if you engage with a non-compliant umbrella company, you could be opening yourself up to an HMRC tax investigation in the future, and this could have serious consequences.

HMRC has shown they’re not prepared to go easy on anybody in their pursuit to reclaim unpaid taxes. Industry stakeholders have heavily scrutinised the 2019 Loan Charge because many contractors have been punished even though they engaged with tax avoidance schemes by mistake. In many cases, unsuspecting workers have been presented with tax bills in the tens of thousands of pounds.

Identifying a compliant umbrella company

Every compliant umbrella company will process the payroll of its employees in the same way. The only thing that’ll vary between one umbrella to another is the margin. Therefore, it’s important you understand how to identify a compliant umbrella company so that you know your payroll is in the safest hands. Here are some tips to help you find a compliant umbrella company.

Check they operate PAYE

Pay As You Earn (PAYE) is HMRC’s tax system, and compliant umbrella companies use it. The umbrella receives the workers’ funds from the agency or end-client, makes the appropriate deductions (including its margin), and pays the employee their net salary.

Check they provide realistic take home pay projections

As mentioned in the point above, compliant umbrella companies operate PAYE. Therefore, you should expect to retain roughly between 50 and 75 percent of your pay. If you get an umbrella company calculation from a provider offering you significantly more – alarm bells should be ringing. While it may be tempting to use the umbrella that offers you the highest pay retention, ask yourself how they’ve come to the figure they’re offering you. Nothing should alter your pay retention between compliant umbrella companies, except for the margin. Even then – the margin won’t make much of an impact on your pay retention, assuming it’s between £20 and £30 per week.

For more information, please read our guide on umbrella company calculations.

Check they are accredited by the FCSA

The Freelancer & Contractor Services Association (FCSA) is the UK’s most recognised professional body dedicated to ensuring the supply chain of temporary workers is compliant. Umbrella companies that have obtained FCSA accreditation have undergone a series of audits and assessments to ensure it abides by the strict FCSA Codes of Compliance.

FCSA accreditation means a lot to every organisation that has achieved it because it requires a lot of work and dedication. The accreditation is a brilliant way for an umbrella company to showcase its commitment to compliance within the industry. If you’re looking for a compliant umbrella, a great place to start is seeking an FCSA member.

Check they provide employee rights and the legitimate benefits they say they can

Compliant umbrella companies will provide you with employee rights (statutory). The umbrella will be your employer, and you’ll be their employee. However, if you engage with a non-compliant umbrella company, there is every chance they can’t offer you the same employee rights – even if they say they can. Therefore, this could leave you vulnerable.

The umbrella company marketplace is booming, with hundreds of organisations competing for business. You must ensure the “little extras” that umbrellas are offering to you in exchange for picking them are legitimate and above board. For example, free insurance, Same Day Faster Payments and Account Management are legitimate extras that compliant umbrella companies might offer you. However, if you come across a business saying they can help you pay less tax and NI – you should avoid them at all costs.

Churchill Knight Umbrella

Churchill Knight Umbrella was founded by experts with over 20 years of experience in the contractor payroll industry. We are committed to providing both excellent customer service and compliant payroll for our employees. By registering with us, you’ll be joining an FCSA accredited umbrella company with a perfect track record.

With a streamlined registration process and access to a state-of the-art app, getting paid with an umbrella company has never been easier. And, all of our employees have access to a host of extras, including employee benefits, Same Day Faster Payments, free insurance cover, and more! There are no hidden fees when you use our service, and you’re free to hop on and off our payroll as you please.

To find out more about Churchill Knight Umbrella or to request a free, tailored umbrella company calculation, please call 01707 871622 or complete the short form on this page.