The top four Umbrella Company myths – busted

If you’re currently in permanent employment but are considering taking the leap into contracting, one of your business model options is to use an Umbrella Company. Whilst this professional step into self-employment is an exciting one, you may have heard a few ‘myths’ which might have made you question your decision.

But is there any truth in these myths, or should you just ignore them and continue onto your new career? In this blog we explore each myth further, to help reveal the truth.

 Myth 1 – You’re able to keep 90% of your pay if you contract under an Umbrella Company

If this were true then everyone would work under an Umbrella! We can confirm that it is 100% not true, as Umbrella Companies effectively act as your employer, and will operate as Pay As You Earn (PAYE). They’ll also pay your income tax and National Insurance Contributions on your behalf from your contractor pay.

These rules apply to every single Umbrella Company, so you won’t find one that actually gives a greater take home pay % over another.

The only difference you’ll notice from Umbrella to Umbrella is the fee they charge for their services, and the amount you’re able to claim in legitimate expenses. You should also judge an Umbrella Company based on its accreditation and certification.

Myth 2 – You won’t receive the same benefits as permanent employees

We can confirm that this is also a myth! As an employee of the Umbrella you receive the exact same employment rights as someone that’s permanently employed. This includes rights such as maternity and paternity pay, sickness and holiday pay, and including payment into your pension.

Using an Umbrella Company is a fantastic option for contractors who are just starting out in the world of contracting, as it ensures you’re paying the taxman everything he’s owed, whilst having the freedom to pick and choose the contracts and clients you work for.

Myth 3 – You don’t need to keep records of your expenses

Not true! Whilst you won’t need to be as strict with your record keeping as you would say if you had a Limited Company, you do still need to keep hold of your expense receipts for certain things. One of the main reasons for doing so is that should HMRC decide to carry out an audit, you’re safe in the knowledge that you’ve got everything you’d need.

HMRC are able to carry out audits up to seven years later, so it’s always worth ensuring you’ll have what they’re after to save yourself any trouble further on down the line.

Myth 4 – You’ll still be caught by IR35 if you us an Umbrella Company

IR35 is a piece of tax legislation designed to catch those contractors who claim to be self-employed, when in fact they’re still retaining all the benefits of being employed, but at the same time the tax benefits of being a contractor. It’s designed to catch those who are wrongfully claiming they’re both, when in fact as a contractor you’re either one or the other.

As an Umbrella Company contractor who’s paying PAYE, income tax and NICs at source, you cannot be caught by IR35.

This also means that Umbrella Companies are unable to claim that they are IR35 complaint, so be aware of any that claim to be!

How SG Umbrella can help

If you have any questions about Umbrella Companies or starting your career in contracting, get in touch, or take a look at our blog on tips for a first time contractor. We work with contractors every single day, and provide advice and support to help them achieve their contracting goals. Let us help you navigate your new career in contracting today.