Umbrella payroll companies explained – the definitive UK guide for contractors and clients

Last checked and updated on 12 May 2022

If you are a business owner or contractor in the UK, then you have probably heard of umbrella payroll. But what is it, exactly? And is it right for your business?

In this article, we will provide a comprehensive guide to umbrella payroll in the UK. We will answer all of your questions and help you decide if this is the right choice for your company.

What is umbrella payroll?

An umbrella payroll company is a third party that contracts with your business to manage all of your employees’ taxes and National Insurance contributions.

This can be a huge relief for business owners, as it takes the burden of paperwork and compliance off of their shoulders.

  • When an employee works through an umbrella payroll company, they are essentially “hired” by the umbrella company.
  • The employee then invoices the umbrella company for their hours worked, and the company pays them directly.
  • The umbrella company is responsible for paying the employee’s taxes and National Insurance contributions to HMRC.

So what is an umbrella payroll company?

An umbrella payroll company is a business that offers payroll services to contractors and freelancers, to provide employment status to them.

They offer a wide range of services, including payroll processing, tax filing, and compliance assistance. They can help you save time and money by handling all of your payroll needs.

Is an umbrella payroll company the same as a payroll bureau?
No, an umbrella payroll company is not the same as a payroll bureau. A payroll bureau is a type of business that just provides outsourced payroll services.

However, they typically only provide basic services, such as calculating employee wages and filing taxes. They may not offer other payroll services, such as compliance assistance.

How does umbrella payroll help a contractor?

This is a great choice for contractors because it offers many benefits. With umbrella payroll, you can enjoy the security of being employed by a company, while still enjoying the flexibility of working as a contractor.

An umbrella payroll company will act as your employer, and will process your payslips and file your taxes. This takes a lot of the hassle and stress out of being a contractor.

And, because the company is responsible for your taxes, you can be sure that you are always compliant with HMRC regulations.

In addition, umbrella payroll companies often offer additional benefits to their employees, such as health insurance and pension contributions. This can make working as a contractor much more affordable and convenient.

What services do umbrella payroll companies offer?

They typically offer a wide range of services, from calculating employee wages to filing taxes. They can also handle compliance issues and provide support if you have any questions or concerns.

Common services include:

  • Payroll Processing
  • Tax Filing
  • Compliance Assistance
  • Health Insurance
  • Pension Contributions
  • Timesheet Management
  • Expense Tracking and Reporting
  • Employee onboarding and management
  • Contractor management services

When choosing an umbrella payroll company, contractors and freelancers should be sure to ask about all of the services they offer to ensure that they are a good fit.

What makes a good umbrella payroll company?

A good umbrella payroll company should be reliable and trustworthy. They should have a good reputation and be compliant with all HMRC regulations. In addition, they should offer a wide range of services that fit the needs of their clients.

And, most importantly, they should be easy to work with and provide excellent customer service. When considering using a particular umbrella payroll company, be sure to search online for reviews from previous customers.

Umbrella company payroll explained – step by step

Here is a step-by-step guide to understanding how the process works for freelancers and contractors:

How to use an umbrella payroll company

  1. Choose a provider

    The first step for the contractor or freelancer to sign up with an umbrella payroll company. This can be done online or over the phone.

  2. Complete the onboarding

    Once you have signed up, the contractor will need to provide some basic information about his or her business, such as company name and address.

  3. Employed status begins

    The umbrella company becomes the employer of the contractor.

  4. Continue the usual contractor-client relationship

    The contractor continues to communicate with the end client to complete their work

  5. Invoicing

    The umbrella company invoices the end client on behalf of their contractor employee.

  6. Tax calculations and filing

    The umbrella payroll company will then calculate the wages for the employee and file any necessary taxes with HMRC.

  7. Wages & Payslip

    The contractor/employee will then receive a monthly salary and pay slip from the umbrella payroll company.

Benefits of umbrella payroll

There are many benefits to using an umbrella service. Perhaps the most obvious benefit is that it can save you a lot of time and hassle.

If you outsource your payroll processing, then you will not have to worry about doing it yourself. This can free up a significant amount of time that you can use to focus on other aspects of your business.

In addition, umbrella payroll companies typically have a team of experts who can handle all aspects of payroll, from compliance to tax filing. This can give you peace of mind knowing that your payroll is in good hands.

Other benefits include:

  • Reduced administration time and costs – The umbrella payroll company will handle all aspects of the payroll process, so you will not need to worry about anything. This can save you a lot of time and money.
  • Increased compliance – Umbrella payroll companies are experts in payroll and tax law. They can help you stay compliant with all of the latest regulations, which can be difficult to do on your own.
  • Reduced risk – By using an umbrella payroll company, you reduce the risk of making mistakes with your payroll. This can save you money in the long run.

Why umbrella payroll is good for employees

An umbrella service is also good for employees. It can provide them with a number of benefits, including:

  • A simplified tax system
  • Increased job security
  • Protection from employment law violations
  • Improved workplace rights

Does an umbrella company avoid IR35?

No, an umbrella company will not avoid IR35. In fact, using an umbrella company may put you more at risk of being caught by IR35.

An umbrella company is a type of employment intermediary, and as such, it is subject to the same rules and regulations as other types of intermediaries.

If you are caught by IR35, then you will be liable for all back taxes and penalties.

Am I classed as self-employed if I use an umbrella company?

No, you are not classed as self-employed if you use an umbrella company. Using an umbrella company is a way of transferring your employment status from employee to contractor.

As such, you will be subject to the same rules and regulations as other contractors. This includes being subject to IR35 if you are caught by it.

Will I be entitled to statutory benefits when using an umbrella company?

No, you will not be entitled to statutory benefits when using an umbrella company. This is because you are classed as a contractor, rather than an employee. As such, you are not entitled to the same employment rights and benefits as employees.

However, this does not mean that you will not be entitled to any benefits at all. Some umbrella companies do offer their own benefits package, which can include things like private health insurance and dental care.

Tax implications of umbrella payroll

One thing to keep in mind when using an umbrella system is that there may be tax implications.

For example, if you are a business owner and you use an umbrella service, then you will be considered an employee of the umbrella company.

This can have tax implications, so it is important to consult with a tax specialist before signing up for an umbrella payroll service.

Is there any UK legislation around umbrella payroll?

Yes, there is some UK legislation around umbrella payroll. In particular, the Companies Act 2006 states that an umbrella company must be a limited company. This means that it must have at least one director and one shareholder. The company must also file accounts and annual returns with the Registrar of Companies.

Another important piece of legislation is IR35. This targets employment intermediaries, such as umbrella companies. It was introduced in 2000 to target tax avoidance by contractors. If you are caught by IR35, then you will be liable for all back taxes and penalties.

Important notes about compliance

When using an umbrella payroll company, it is important to keep in mind that there are compliance issues to consider.

For example, you will need to make sure that the company you choose is registered with HM Revenue and Customs (HMRC) and is compliant with all relevant legislation.

It is also important to ensure that your employees are aware of their tax and National Insurance obligations. Failure to comply with these requirements could result in hefty fines.

Choosing an umbrella payroll company

When choosing an umbrella service provider there are a few things to keep in mind.

First of all, be sure to ask about the services they offer.

Second, be sure to check out their track record and reviews from past clients.

And finally, be sure to consult with a tax specialist before signing up for an umbrella payroll service.

What are the best providers in the UK?

There are a variety of umbrella payroll firms in the United Kingdom. When choosing a firm, think about your unique requirements and financial restrictions.

Some businesses provide more extensive services than others, so choose one that is suitable for your company.

Also, inquire about any other fees that may be incurred as a result of the provider’s services.

Top 10 umbrella payroll companies in the UK

If you are looking for an umbrella provider in the UK, then you have come to the right place. In this section, we will provide a list of the top ten umbrella payroll companies in the UK.

We will also include a brief description of each company so that you can find the one that best meets your needs.

The top ten umbrella payroll companies in the UK are:

  1. RM Business Associates – RM Business Associates is a leading umbrella company in the UK. They offer a wide range of services, including PAYE and umbrella solutions.
  2. Axe Pay – Axe Pay Ltd offers a wide range of payroll services, including PAYE, Umbrella Solutions, and P11D.
  3. PlusPay – PlusPay is recommended for small businesses and freelancers.
  4. Paystream – Paystream is known for their high-quality customer service and their extensive range of services.
  5. Umbrella Company – Umbrella Company (Umbrella.co.uk) is a leading provider of umbrella payroll services in the UK. They are registered with HMRC and are compliant with all relevant legislation.
  6. Engage Pay Solutions – Engage Pay Solutions stands out because of their unique approach to payroll services.
  7. Premier Pay – Premier Pay is a leading provider of umbrella payroll services in the UK. They offer a wide range of services, including PAYE and Umbrella Solutions.
  8. Transparent Umbrella – This company claims to save contractors 75% on fees and offers a 100% money-back guarantee.
  9. Apex Contracting – This company offers a wide range of contracting services, including umbrella payroll.
  10. Acacia Resourcing Services – High-quality customer service is offered by this firm, which provides a wide range of services such as payroll processing, tax filing, and compliance assistance.

When choosing an umbrella payroll provider, be sure to ask about all of the services they offer to ensure that they are a good fit for your business.

You should also compare rates to make sure you are getting the best value for your money.

Be sure to ask about any discounts or promotions that may be available so that you can save even more on your umbrella payroll services.

What is the best umbrella payroll software?

There are many different software options available for umbrella payroll, which is used by umbrella payroll companies.

The contractor or business would not be using this software themselves, but rather the umbrella company would be responsible for managing and administering the payroll.

Some of the most popular umbrella payroll software options include:

  • Xero (read our Xero Payroll review)
  • QuickBooks Online
  • FreeAgent
  • Wave Accounting
  • Zoho Books
  • Expensify
  • Shoeboxed
  • Sage 50
  • FreshBooks

How much does umbrella payroll cost?

The cost of umbrella payroll services will vary depending on the provider you choose and the features you need. Be sure to compare rates from different providers to get the best value for your money.

Use our umbrella payroll calculator to work out your net take-home pay.

You may also be able to save money by taking advantage of discounts or promotions that are offered by some providers. When you are comparing rates, be sure to ask about all of the services that are included in the price.

Conclusion

The main points from this article were:

  • Umbrella payroll is a type of payroll service that can be used by contractors and freelancers in the UK.
  • Umbrella payroll services can offer many benefits, such as compliance support and tax filing.
  • There are many different software options available for umbrella payroll, so it is important to choose one that is a good fit for your business.
  • Umbrella payroll can be a great option for businesses in the UK. If you are considering using an umbrella payroll service, then be sure to do your research and find the right software for your business.
  • The cost of umbrella payroll services will vary depending on the provider you choose and the features you need.
  • Umbrella payroll can be a valuable tool for businesses in the UK, and it can help to simplify the payroll process.

So, there you have it! Everything you need to know about umbrella payroll in the UK. We hope this guide has been helpful and that you now have a better understanding of what umbrella payroll is and how it can benefit your business.

Important – The information provided in our articles is intended to be for general purpose use only, and not advice for you or your business. We strive to publish accurate information, but encourage you to fact-check and seek expert guidance. We recommend that you always speak to a qualified professional to get advice about how to operate your business under your specific requirements and circumstances.