Umbrella – How does it work?You join any recruitment agency and they give you contract job, recruitment agencies are best at finding jobs for people and people for jobs, not organizing payroll, so you get an option to join Umbrella Company and reap the benefits as contractor.
When you sign a contract with an Umbrella Company, they will inform your agency or end-client that you are using their Umbrella Services. So your status will be altered from PAYE to Umbrella at agency’s end.
You will have to send your timesheets to Umbrella Company and they will invoice your agency or end-client on the same day. Your Umbrella Company collects payment from the agency and deducts all appropriate taxes, after which the net figure is paid to you.
When working through an Umbrella Company you are allowed to claim legitimate business expenses which have been incurred during your duty. These are known as ‘allowable’ expenses and most commonly consist of travel and mileage expenses, accommodation expenses, and professional subscriptions and more. You will be required to submit an expense claim to the Umbrella Company, listing all the expenses you have incurred providing and retaining the original expense receipts as proof of your claims in case they are required by HMRC at a later date. The expenses are then offset against your taxable income to reduce your tax liability
“So if you earn £1,000 and claim £200 of expenses, you’ll only pay tax on £800 rather than the full £1,000”
You will receive a pay slip detailing the amounts deducted for tax and NI, the amount claimed in expenses and the net figure paid as salary.
Under an Umbrella Company you are covered for all employment related insurances which is usually included in their service fee.