Umbrella Companies

Q. What is an umbrella company?

A. An umbrella company is an organisation set-up to employ a number of freelance contractors and sub-contract them to Recruitment Agencies / end-users. It is normally run and owned by accountants or others who specialise in the freelance financial sector.

Q. How does an umbrella company work?

Unlike the limited company option, with a PAYE umbrella company, you become an employee of the umbrella comapny.

Every week (or month), on receipt of your timesheet, the umbrella comapny will invoice the client on your behalf. Once the client has paid the invoice, you will receive your income from the umbrella company, net of income tax, national insurance contributions, and the umbrella fee.

Q. How do I decide whether to set-up my own company or join an umbrella company?

A. This largely depends on your own attitude. Generally speaking you will achieve a higher net return from operating through your own Limited Company, as you have the opportunity to offset more expenses against your income. However by joining an umbrella company you will generally minimise your administration obligations, and umbrella companies tend to often suit contractors who may only be intending to contract in the short-term. However we can give you a personal illustration on request.

Q. What is an umbrella company 'expenses dispensation'?

A. Some umbrella companies claim to have been given 'generous' or 'special' expenses dispensations from HMRC for their contractor workforce. However, there are no special expenses dispensations - these are created purely to cut down on paperwork rather than providing bonus expenses payments to contractors. You can read Contract Eye's guide to umbrella company expenses dispensations for more information on this subject.

Q. Do Clarity operate an umbrella company?


A. Yes we have our own in-house umbrella organisation Clarity Umbrella. Ask here for more information.