Many contractors across the UK opt to work through an umbrella company in order to avoid the stresses that come with contracting through a limited company, such as financial worries, tax returns, admin and duties that come with running a company.
If you'd also like to avoid these additional responsibilities, then an umbrella company is the best way to go.
However, the benefits and convenience of using an umbrella company do come at a price. Umbrella companies charge a fee, or a margin, in exchange for the benefits and services provided to the contractor.
With the umbrella fee coming off your contractor pay, you will inevitably want to ensure that you are getting a fair deal.
To help, in this guide, Umbrella Search outlines how much umbrella companies charge, as well as how fee structures work and any additional costs to look out for, so you know exactly what to expect.
How much do umbrella companies charge?
The first thing that contractors will want to know is how much umbrella companies charge in fees.
As we have mentioned, the umbrella company fee is deducted from your pay, so it's important to ensure you get a good deal. After all, you work hard for your money, so you want to ensure you are getting fair value in return.
The first thing to mention is that umbrella company fees have remained competitive over the years, which is great news for contractors. Although fees do vary from company to company, on average contractors can expect to pay around the £25 mark per week to the umbrella company.
Although this is an additional expense for the contractor, it is worth noting that were you to go it alone and operate through your own limited company, you would be paying an accountant a monthly fee, which usually exceeds this amount.
How is the umbrella company fee charged?
Although this represents an average cost, it is worth noting that there are a couple of different ways that the umbrella company can charge the fee, which can impact how much you end up paying.
The first way is through a fixed fee.
As the name suggests, this is a fixed sum of money that the umbrella company will charge the contractor. So, if your umbrella company charges £25 per week, you will pay this sum of money each week and this figure won't change.
The other option, which is usually the lesser preferred route, is a percentage fee. Here, the umbrella company's fee is charged as a percentage of the invoice amount. Although this amount is typically capped, this is usually the least favourable option due to the fact that contractors may end up paying more in fees one month if they earn more, despite receiving the same level of services from the umbrella company in return.
For this reason, it is becoming increasingly rare for umbrella companies to charge their fee in such a way, however, it is always worth reading the small print to ensure you secure the best option for you.
How do umbrella companies collect their fee?
One of the many benefits of working with an umbrella company is that they deal with the client on your behalf. They will invoice the client based on hours worked and collect the payment from them directly, deducting their fee from your earnings.
Although the umbrella company's fee obviously comes in as an additional cost to the contractor, the great news is that it is considered a legitimate business expense by HMRC.
This means that the umbrella fee is deducted from your pay before tax is paid, essentially reducing your tax bill. This is great news as it means you will pay slightly less tax.
Are there any other costs to consider?
As well as the umbrella fee, some umbrella companies will charge additional costs, which contractors should also look out for.
For example, umbrella companies may charge:
Sign-up fees: this is a fee charged simply for joining the umbrella company
Exit fees: likewise, this a fee charged when you leave the umbrella company
Same-day payments: some umbrella companies will also charge the contractor if they require faster same-day payments.
Price isn't everything
Although every contractor wants to get value for money, it is important to consider that price isn't everything. After all, you will be working with the umbrella company closely and daily, so it's important to find an umbrella company you can build a good relationship with and have a good experience with. Sometimes a slightly higher price point can indicate quality and give you a better experience all round.
We're here to help
At Umbrella Search, we know that it can be difficult to know where to start when it comes to finding an amazing umbrella company with a good value price point to match. That's why we're here to do the heavy lifting for you.
We will put in the hours to find an umbrella company that meets your criteria and is within your budget to give you peace of mind to get on with what matters, the contract at hand.
To see how we can help find the perfect umbrella company for you, simply get in touch with our friendly team today.