No, you do not have to be afraid.
An Umbrella company has nothing in common with Resident Evil’s Umbrella Corporation – although everyone of us feels a little bit like a zombie before the morning coffee.
In short, an Umbrella Company is an opportunity to earn a little more than PAYE, without renouncing to the benefits that PAYE entails such as sick leave, maternity leave and employment protection. An Umbrella Company is also a good solution for those who do not want to operate their own payroll and be faced with the administrative burden of running their own limited company.
How it works?
In it is simplest form, it is trilateral relationships among You – The Umbrella Company – The Client.
You sign an employment contract with the Umbrella Company (you are, in fact, an employee of the Umbrella Company, not of the Client). You then perform the document review for the Client, fill you weekly timesheet with the amount of hours you worked and send it to the Umbrella Company.
The Umbrella Company invoices the Client based on the amount of hours you worked, retains a fee for the service provided to You and the Client and pays your salary. The Umbrella Company is also responsible for deducting and paying your taxes and NIC contributions to HMRC on your behalf.
The Client pays the invoice and doesn’t have to deal with the economical and legal requirements that a salaried employee would entail.
Why is better than PAYE?
The advantage for you is that – subject to certain tests and exceptions– you will be able to claim work-related expenses like food, travel, mileage and accommodation.
You will have to keep a receipt for any expenses you incur as part of your job, uploading (or posting) them to the company’s system and the company will then reimburse you.
The combination of the salary paid by the Umbrella Company plus the reimbursed expenses – and minus the Umbrella’s fees – is normally higher than the standard PAYE salary you would have earned if you had been employed directly by the Client.
Is this is legal?
The answer is Yes. Offering professional services via a third party entity – rather than contracting directly with the client – is allowed in UK.
However, it is important to remember that only certain expenses can be reimbursed and within specific parameters defined by the law. Be mindful of small outfits that boast a very high take home pay promising to reimburse all your expenses, as they may not be fully compliant with the current regulations.
In addition to that, check the amount of the weekly or monthly Umbrella Company’s fee and what level of service and benefits you will be entitled to, as this will have a direct impact on the amount of money you will receive for your document review services.