The Ultimate Guide to Umbrella Companies

Umbrella companies act as employers to contractors for the length of a specific engagement, turning the self-employed into taxable employees. They employ contractors working on temporary assignments, serving as intermediaries between contractors and their clients (the end client or recruitment agency).

‘Umbrella Company’ meaning

The term ‘Umbrella Company’ refers to the fact that the business provides administrative services to many contractors simultaneously. Unlike limited companies, it is not unique to the individual. While the concept of an umbrella company may seem counter-intuitive to being self-employed, they serve a required niche created by the introduction of IR35.

The role of an umbrella company is administration-focused. They manage timesheets, invoice the relevant party on behalf of the contractor, calculate and pay the required taxes and National Insurance Contributions, and pay the remaining monies to the contractor (less any fees/margin for services rendered).

As contractors become employees for the time they work through an umbrella company, they are no longer subject to IR35 checks. As such, umbrella companies are the most popular choice for those required to work Inside IR35. In fact, clients often stipulate that contractors must work through an umbrella company if the contract is Inside IR35.

How does an umbrella company work?

Although it can seem complicated in theory, the mechanics of working through an umbrella company are relatively straightforward:

Are umbrella companies safe?

There is a common misconception that umbrella companies have unethical practices around handling payments to contractors. Umbrella companies that comply with HMRC’s rules are perfectly safe. If an umbrella company follows the rules correctly, take-home pay should never vary. The only deduction that varies among different providers is the margin, the fee umbrella companies charge for their services.

Contractors should treat any umbrella company that claims they can provide tax advantages with extreme caution! All umbrella companies must follow HMRC’s tax rules and regulations in the same way as any employer. There is almost no room to manage your tax liability advantageously once you enter PAYE.

What is the difference between an umbrella company and a limited company?

A limited company is a separate legal entity through which business is conducted; all liability lies with the business rather than the owner(s). An Umbrella company employs contractors working on temporary engagements; acting as intermediaries between contractors and their clients, with their primary responsibility being to organise payment for work performed.

While some specialists may recommend one direction over the other, contractors should be wary of service providers promoting their own self-interests. There is no one-size-fits-all approach, instead, you’ll need to consider IR35, length of contracts, earnings, and how much control you’d like.

Employment Status

Employment status is the primary difference between operating via a limited company and an umbrella company. Contracting via a limited company means you are self-employed. You are both a director and a shareholder with complete control. It is your responsibility to sort out the company’s financial and administrative affairs and ensure the correct tax is paid (both business and personal).

Umbrella companies act as employers to contractors for the length of a specific engagement, effectively turning the self-employed into taxable employees (thus becoming eligible for PAYE). While contractors retain the flexibility to set their own working conditions (via contract negotiations), most of the administration is done by the umbrella company.

Getting Paid

As a limited company contractor, you must negotiate payment terms and invoice clients for work performed. You must set up a business bank account, register for VAT if required and submit HMRC-compliant invoices. If no payment terms are agreed upon, the law assumes a standard 30-day payment period exists. The client will pay your company directly, and you can then pay yourself.

An umbrella company is essentially an invoicing vehicle for contractors; it allows them to avoid the administrative duties involved in payment processing. Contractors working through an umbrella service will submit timesheets and leave the rest to the umbrella company. They will invoice the client on your behalf, and the client will pay the umbrella company, which, in turn, will pay you.

Tax

Provided your contract falls Outside IR35 (see IR35 considerations below), one of the main benefits of contracting via a limited company is that it is the most tax-efficient way to operate. Limited company contractors can access various expenses and tax allowances.

They have great flexibility over when to take income from the company, pay themselves a tax-efficient combination of salary and dividends, and even transfer shares to a spouse (if appropriate).

Unfortunately, there is very little contractors can do to minimise their tax liabilities when working through an umbrella company. As umbrella company employees, contractors are subject to the same Income Tax (via PAYE) and National Insurance Contributions as permanent employees.

Contractors must also cover employment costs (such as Employer’s National Insurance Contributions) out of the agreed-day rate.

Admin

If you set up a limited company, you become a company director with many financial and statutory responsibilities. HMRC and Companies House (the official registrar of companies in the UK) both have tax and reporting obligations that need to be met.

As a director, it is your responsibility to meet these obligations. Given the complexities involved and the penalties for getting something wrong, most contractors employ a specialist contractor accountant to help run a limited company.

An umbrella company acts as a contractor’s administrative vehicle, meaning contractors avoid the hassle of dealing with any paperwork. Contractors submit their timesheets detailing hours worked for each contractually agreed payment cycle, and the umbrella company does the rest. They issue invoices, calculate the relevant tax and National Insurance Contributions, and chase outstanding payments. All the contractor needs to do is work.

Expenses

Whether a contract is Inside or Outside IR35 determines what expenses a contractor can claim.

As a limited company contractor working Outside IR35, you can claim tax relief on several business expenses. So long as the expense was incurred wholly and exclusively for the purposes of running the business, the costs can be offset against Corporation Tax payments.

Prior to April 2021, contractors working Inside IR35 via an umbrella company were entitled to claim a 5% general expense allowance on the value of the contract. This 5% was given at a flat rate, calculated on the gross fees receivable, and there was no requirement to provide receipts or other proof of expenditure. Since April 2021, new rules have been introduced which significantly curtail who can claim the 5% allowance. For all public sector and most private sector contracts, the 5% allowance no longer exists. The only exception is if the contract is in the private sector and the client is deemed a ‘small company’.

Advantages and disadvantages of an umbrella company

The main advantages and disadvantages of an umbrella company are:

Contractors and umbrella companies

If your contract is deemed to be Inside IR35, then the benefits of contracting via a limited company become obsolete. You are considered an employee for tax purposes, meaning you pay Income Tax and National Insurance at the same level as a company employee.??

Contractors that continue to work via a limited company while Inside IR35 will have taxes deducted at source by the fee payer (the end hirer or agency). The fee payer will allocate a tax code and make the relevant National Insurance and Income Tax deductions.

The remaining amount is then paid to the limited company along with any VAT owed. As the fee payer has already deducted tax from the monies paid to the limited company, the contractor does not need to pay any further personal taxes (income, NICs, or dividend), and the company does not need to pay any Corporation Tax on the received amount. This avoids any issues related to double taxation.

Working Inside IR35 via a limited company is not tax-efficient as you will still incur expenses involved in running a business (accountancy costs, insurance costs, etc) while also maintaining the responsibilities of filing accounts and tax returns.

While it is technically possible to continue to work through a limited company if your contract is Inside IR35, most clients will refuse to engage you. They will have preferred methods of engagement, usually via an umbrella. As such, if you find yourself working Inside IR35, you may have no choice but to operate through an umbrella company.

Sole trader contracting is rarely a viable option; almost all agencies and clients will reject contractors operating as such. It exposes agencies and clients to employment tribunals, and the unlimited liability exposure makes it less appealing for contractors.

Umbrella companies manage contractor pay via PAYE, deducting taxes, National Insurance, and employment costs like Employer’s NICs and Apprenticeship Levy. Although detailed payslips are provided, the terminology used (including the difference between assignment income, gross pay, and net income ) can often be confusing to new contractors.

Umbrella company payslips

Contractors are employees of their umbrella company and, as employees, should receive a payslip for every contractually agreed payment cycle. For both new and experienced contractors, understanding an umbrella company payslip may be challenging; it’s not easy to follow how pay has been calculated or what deductions have been made.

Your umbrella company payslip should include your personal details, including your name, employee number, National Insurance number and tax code. It will also list any deductions from your gross income, taxes (Income Tax and National Insurance Contributions), student loan payments, and pension contributions. Once these deductions have been calculated, you’ll be left with your net income, otherwise known as your “take-home pay”.

A contractor working through an umbrella company will also receive an invoice reconciliation alongside their payslip. The reconciliation breaks down the deductions from assignment income to determine the contractor’s gross pay. It is intended to ensure contractors have visibility of the invoices raised to the fee payer and the statutory and non-statutory deductions umbrella companies make.

To calculate an employee’s gross pay, umbrella companies deduct statutory employment costs and their margin from the assignment income (the amount the fee payer is invoiced). The employment costs include Employers’ National Insurance Contributions (NICs) and the??Apprenticeship Levy. Employer’s pension contributions are also deducted if applicable. Once these costs have been subtracted, you’re left with your gross pay.

Umbrella companies comparison sites

Before you choose which umbrella company to join for your contracting business, chances are you’ll seek out reviews online. Google makes it incredibly simple to find information relating to umbrella companies online; however, the integrity of such information is often questionable.

The past few years have seen a massive growth in umbrella comparison websites, sites asking you to enter your details and they’ll send you a personalised quote. While some of these sites may be legitimate, many are not. You’ll often find the top recommended slots on these comparison sites to be populated by the site’s sponsors. The umbrella companies willing to pay the most get recommended to contractors – hardly an impartial or fair review service!

Although there will always be scope for fake or manipulated reviews to be included, review websites like Trustpilot or Feefo can be used as valuable barometers to determine how particular umbrella companies treat their contractors. As long as you approach the reviews cautiously, these sites can provide indicators of the overall perception of a given umbrella company.

Best umbrella companies

The best umbrella companies will ensure the process of being paid is simple and stress-free. Good umbrella companies typically make a payment run every week (some make several per week), ensuring you’re paid reasonably soon after invoice submission.

Salary sacrifice pension contributions are essential for contractors to reduce their tax liability, especially those earning over ??100k. Not all umbrella companies offer salary sacrifice arrangements, and where they do, some charge additional fees for processing these payments.??It’s worth noting that these additional charges, assuming they’re not exorbitant, are usually reasonable given the extra administration involved for the umbrella company.

Furthermore, a reputable umbrella company should provide you with support and advice, promptly responding to emails or calls. Fully automated and online umbrella companies may be cheaper, but it is almost certain you will need to speak to a qualified person at some point during your contract.

Worst umbrella companies

Some umbrella companies may try to entice you by suggesting they offer a more efficient payment structure. The most common methods are:

These schemes are tax avoidance or, at worst, tax evasion.

As an umbrella company employee, you should receive 100% of your income through PAYE. Working through an umbrella company offering anything else could expose you to backdated taxes, penalties, and late interest payments should HMRC catch you.

All umbrella companies are required to follow HMRC’s tax rules and regulations; there is almost no room to manage your tax liability advantageously once you enter PAYE. Take-home pay should never vary, regardless of the umbrella company chosen, and as such, it is difficult for one compliant umbrella company to be significantly better than another.

Contractors should also be wary of umbrella companies with entry fees, exit fees or penalties for leaving early. The company is your employer, so assuming you adhere to your terms of employment, it should not be charging you anything beyond the agreed margin.

Finally, you should avoid umbrella companies that link their margin to the contractor’s rate. A reputable umbrella will not charge you for what you earn; no additional work is involved from their perspective should your rate increase.

Payslip terminology

Important terminology that every umbrella company worker should be aware of:

What are the different types of umbrella company pay?

The difference between an assignment rate, gross pay and taxable income is a common cause of confusion among workers new to umbrella employment. Contractors working Inside IR35 via an umbrella company are advised to understand the different types of pay quoted during negotiations, as the actual rate they receive could be less than expected.

You have the right to appeal HMRC’s decision, a process that involves a review of the case by an independent tribunal.

How do umbrella companies calculate tax?

Umbrella companies process two types of taxes: those for an employer and those for an individual.

For many contractors, the ‘??100k abatement’ must be considered. For earnings over ??100k per annum, the tax-free personal allowance is reduced by ??1 for every ??2 over ??100k that is earned. This adjustment is made through the contractor’s tax code.

The tax code used to calculate your net pay will be the one supplied to the umbrella company on your P45, provided directly by HMRC via a P6 coding notice, or arrived at as the result of you completing a new starter checklist. If you believe your tax code is incorrect, you must contact HMRC to ask them to send an updated tax code to your umbrella company.

Tax avoidance vehicles masquerading as umbrella schemes often try to target contractors, offering inflated take-home pay rates. The warning signs may be obvious to established contractors, but many have been duped into using them. These schemes do not work, and those who use them may have to pay much more than the tax they tried to avoid.

What is a tax avoidance scheme?

A tax avoidance scheme operates with the intention of bending the rules of the tax system to gain an advantage that was never intended. They often involve contrived, artificial transactions that serve little or no purpose other than to produce this advantage.

For Inside IR35 contractors, these schemes involve an umbrella company giving you some or all your pay in the form of a loan, salary advance, grant, annuity or any other payment you’re told you’re not expected to pay back. These payments are claimed to be non-taxable, often without explanation, and can lead to higher take-home pay.

You may be asked to sign an agreement with an umbrella company in addition to your employment contract. This will often be a loan or other arrangement that attempts to disguise some of the payments paid to you by your umbrella company as non-taxable.

The untaxed amount may be diverted through a chain of companies, trusts or partnerships (often based offshore) and paid to you by a third party. In other cases, the payments may be made directly to you from a UK-based umbrella company.

It is worth noting that some tax avoidance schemes market themselves as being compliant umbrella companies. Compliant umbrella companies only operate via PAYE and never advertise or promote tax avoidance arrangements.

How to spot a tax avoidance scheme?

Here are some warning signs that you might be in a tax avoidance scheme or are being offered to join one:

HMRC maintains a list of tax avoidance schemes , although they note that it is incomplete. If an umbrella company isn’t on the list, it doesn’t automatically make it safe to use. Contractors should always do their due diligence.

Tax avoidance penalties

Tax avoidance arrangements that claim you pay less tax are incredibly high risk. Most of these schemes do not work and have been successfully challenged by HMRC in the courts. If you’re involved in a tax avoidance scheme, HMRC will thoroughly investigate your tax affairs and may also require you to pay the tax you’re trying to avoid upfront.

You may receive a tax bill called an??accelerated payment notice, a requirement to pay the total amount of tax or National Insurance Contributions HMRC calculates as being due upfront and within 90 days.

If you do not pay the tax and National Insurance Contributions you owe, HMRC may decide to take legal action and take you to court. HMRC states that they win around 9 out of 10 avoidance cases heard in court. If you lose, you could face significant legal costs on top of the tax you owe, penalties and growing interest.

HMRC will treat you as a high-risk taxpayer; they will closely inspect all your tax affairs in future.

How to proceed

HMRC offer an interactive risk checker to help contractors working through umbrella companies identify if their employment arrangements could involve tax avoidance. If you’re still unsure, you should seek independent professional advice.

If you think you’re in a tax avoidance scheme, don’t wait for an investigation to catch you out. You should withdraw from the arrangement and settle your tax affairs with HMRC. The longer you put off settling and paying the tax due, the more interest you’ll pay, and the more you risk court proceedings.

HMRC has dedicated teams who can help you settle your affairs and won’t charge you for their advice.

An umbrella company margin is the fees the umbrella company charges contractors for their payroll service. It is the only income the umbrella company receives as they do not directly benefit from the work performed by contractors. The margin covers the cost of running the contractor’s payroll, administration, internal staff salaries and other business costs.

The common questions we usually see are:

National Insurance Contributions (‘NICs’) are a tax on earnings paid by employees, employers and the self-employed. They help to build your entitlement to certain benefits, such as the State Pension and Maternity Allowance.

As an umbrella company employee, you’re subject to Class 1 NICs and liable for both the Employer’s and Employee’s payments owed to HMRC.

Employer’s National Insurance

When a contractor signs up with an umbrella company, the umbrella company becomes the employer and the contractor the employee. In this relationship, the umbrella company provides a payroll service to the contractor; however, they don’t benefit from any work performed during the contract. As a result, umbrella companies are not in a position to cover the employer’s NICs.

The end client is the organisation benefiting from the work, although they are not technically the employer in this supply chain. Therefore, the employer’s NICs are passed on to the contractor.

There is a common misconception that umbrella companies are being unreasonable by passing these employment costs on; however, they have no choice. As contractors don’t work directly for the umbrella company, the umbrella company cannot afford to cover the required deductions.

It’s important to remember that your umbrella company is not retaining or profiting from these deductions; they are sent directly to HMRC. The margin charged covers the cost of processing payroll.

The Apprenticeship Levy

The Apprenticeship Levy is a small tax levied on UK employers to fund new apprenticeships. All employers with annual pay bills of ??3m or more must pay the Levy at 0.5% of the company’s total wage bill, minus a fixed ??15,000 yearly allowance.

For contractors, your umbrella company is your employer, and it must, by law, pay all employment taxes based on income generated by its employees. Umbrella companies pay these statutory employment costs from the funds received from your agency or end client. As the apprenticeship levy is one of these statutory costs, it will appear on your payslip alongside other statutory costs, such as the Employer’s National Insurance.

Employment costs, such as employer’s NICs and the Apprenticeship Levy, are why rates for Inside IR35 roles are usually higher than those for Outside IR35. End clients try to consider these deductions.

Contractors working through umbrella companies are employees and are therefore entitled to statutory holiday pay. In this relationship, the umbrella company provides a payroll service to the contractor; however, they don’t benefit from any work performed during the contract. As a result, umbrella companies cannot directly cover the holiday pay, which must come from the contractor’s earnings.

Do umbrella companies pay for holidays?

The short answer to this is, no! While contractors working through umbrella companies are entitled to holiday pay, the holiday pay isn’t paid out of the umbrella company’s own money. While the umbrella company manages the administration of apportioning holiday pay, the holiday pay itself is simply a reallocation of the contractor’s pay.

Similar to employment costs (employer’s NI, apprenticeship levy, etc.), holiday pay allocation is included within the assignment rate agreed upon with the fee-payer. Contractors will not receive an additional 12.07% uplift because the 12.07% is factored into the rate agreed upon during contract negotiations.

There are two methods by which umbrella company contractors can receive holiday pay:

Contractors usually prefer the advanced payment method to avoid leaving money owed to you in an accrual account with the umbrella company. If the umbrella company were to go bust, the holiday pay would be lost.

How is holiday pay calculated?

The 12.07% allocated to holiday pay is based on the European Working Time regulations, which state that employees are entitled to 5.6 weeks of holiday in a year or 28 days. Dividing 5.6 by 46.4 (the remaining weeks in the year) gives a rounded figure of 12.07%.

The holiday pay figure shown on your payslip will be 12.07% * gross pay. To calculate gross pay, umbrella companies deduct statutory and non-statutory employment costs from the assignment income (the amount the fee payer is invoiced).

Holiday pay is a form of taxable income. It is, therefore, subject to statutory deductions such as Income Tax and NICs.

While expenses can technically still be reimbursed while working through an umbrella company, you cannot offset them against your earnings like you can while working Outside IR35 through a limited company. Similar to permanent employees, all expense claims must be submitted, approved by the client, and paid in addition to your regular contract income.

Example

No umbrella company can legally process anything other than client billable expenses for tax relief purposes. Any umbrella company that actively promotes otherwise should be avoided as they are almost certainly behaving unethically.

The easiest way to think about umbrella company expenses is to consider yourself a permanent employee of the end client. If a permanent employee can ask their employer to reimburse an expense, it is likely you can also. If they can’t, you can’t.

Let’s look at an example.

As an umbrella worker, travel to and from the end client’s regular place of business (i.e. ordinary commuting) is not an allowable expense. However, if you must travel away from the end client’s principal place of work, you can ask the client to reimburse the expenses incurred.

Any exceptional travel is permitted to be reimbursed as a tax-free expense, and the costs of accommodation, where you are required to stay overnight for work, are also allowable. This mirrors the treatment of permanent employees who can claim expenses when visiting clients or performing off-site work.

Remember, these expenses do not offset your income. They are approved by the client and repaid in addition to the standard contract rate.

Claiming expenses via self-assessment

It is worth noting that, in limited cases, if you do not have an agreement with the client to reimburse expenses, you may still be able to claim HMRC.

You can use a P87 form to submit a claim at any point in the tax year if the claim is less than ??2,500; otherwise, you must submit the claim via your self-assessment tax return. You must have paid tax in the year you’re claiming for, and the amount of tax relief you receive cannot be more than the amount of tax you paid in that year.

Expenses prior to 2016 and the SDC assessment

Prior to April 2016, contractors using umbrella companies could claim tax relief on travel and subsistence (T&S) expenses by treating multiple assignments as temporary workplaces under “overarching employment.” However, this relied on precise contractual terms to avoid HMRC challenges.

Restrictive legislation brought in in 2016 ended overarching employment, introducing Supervision, Direction, or Control (SDC) rules. Each assignment became a separate engagement, classifying many workplaces as permanent, disallowing T&S expense relief, and addressing perceived tax relief abuse.

When determining whether the restrictive 2016 legislation captures them, HMRC applies a strict SDC test. Unfortunately, HMRC believes those employed through intermediaries, such as umbrella companies, are automatically subject to SDC unless proven otherwise.

As HMRC’s default assumption is that umbrella company workers are subject to SDC, the onus is on the contractor to demonstrate otherwise. HMRC isn’t prescriptive on what evidence they would find persuasive in considering whether this test is met, although they have made it clear that signed statements aren’t sufficient.

Where it is considered that the legislation doesn’t apply because the SDC test is not met, and HMRC are involved in an enquiry, they’ll test evidence by examining relevant documents and gathering facts from all parties involved.

How is the SDC assessment made?

The umbrella company usually makes the assessment in the form of a questionnaire, combined with input from the end client (if required). Where an incorrect assessment is made, any additional taxes owed are the liability of the umbrella company unless they relied on fraudulent documents provided during the assessment process. In this case, the liability shifts to the person who provided the documents.

Where there is a determination that a role is Inside IR35, the view is that the contractor is automatically subject to SDC, even if the tests may show otherwise. This is why contractors working Inside IR35 via umbrella companies rarely claim anything other than client-billable expenses.

Umbrella company pensions offer contractors three options: workplace pensions (auto-enrolment), salary sacrifice, and net pay contributions. While workplace pensions are mandatory with government-set contributions, salary sacrifice provides greater tax efficiency and control. Net pay contributions offer basic tax relief with potential for higher-rate rebates. Choose carefully to optimise tax savings and pension growth.

Workplace Pensions (Auto-Enrolment)

A workplace pension, also known as an auto-enrolment pension, is set up by an employer for its employees. Employees typically pay a percentage of their monthly salary into the scheme, with employers also contributing.

As your employer, umbrella companies must legally enrol you into a workplace pension. When you register with an umbrella company, they’ll send you information regarding pension auto-enrolment and their preferred pension provider. This is usually NEST, the Government’s workplace pension scheme.

The minimum contribution set by the Government that you can pay into your pension is 8%, split into 5% employee and 3% employer. It’s important to note that both the employee’s 5% and the employer’s 3% are deducted from assignment income. They are not an additional uplift, and the umbrella company does not contribute from its own funds.

Both employee and employer workplace pension contributions reduce taxable income, thereby reducing Income Tax owed. The employer element also reduces gross pay, thereby reducing both employer and employee National Insurance Contributions

However, no National Insurance relief is given on the employee element. This makes workplace pensions less tax-efficient than salary sacrifice.

In addition, workplace pension schemes often come with high charges. Take the Government’s scheme, NEST, as an example. They charge 1.8% on every contribution and a 0.3% annual management fee. While the 0.3% fee is broadly in line with the industry average, the 1.8% contribution fee is steep. Plenty of Target Retirement Funds charge nothing to contribute and lower ongoing costs. See Vanguard’s Target Retirement as an example.

The Vanguard Target Retirement merely illustrates the high fees charged by workplace pensions; it is not advice or a recommendation to invest.

Salary Sacrifice Pension

A self-invested pension plan (‘SIPP’) is a type of personal pension that allows you to manage your investments or pay a chosen financial adviser to support you. Most contractors opt out of workplace pensions in favour of salary sacrifice as it offers more control and greater tax relief.

Umbrella companies deduct salary sacrifice contributions from your gross pay; there is no additional burden for the contractor. Contributions also reduce both Income Tax and National Insurance, unlike a workplace pension, for which only the employer element reduces NI.

It is, therefore, the best option for those seeking to minimise their tax liabilities.

Not all umbrellas offer salary sacrifice due to the challenges of implementing it into their existing payroll software. If it interests you, always double-check before you register that your chosen provider can accommodate salary sacrifice. As this is an extra administrative burden for an umbrella company, it often comes with supplementary fees.

Contributions from net pay

Many contractors contribute to their SIPP from their net take-home pay; the income received after all taxes and contributions have been paid. If you contribute to a SIPP from your net take-home pay, you will receive an automatic basic rate tax relief (20%) upon contribution.

Your SIPP provider will obtain this 20% relief directly from HMRC; you don’t have to do anything. You can then apply for higher rate (40%) and additional rate (45%) tax relief via your self-assessment at the end of the year.

To give an example, if you are a higher rate taxpayer (40%) and contribute ??8,000, your pension provider will automatically claim ??2,000 for you and you’ll get a ??2,000 tax rebate. Your pension pot is ??10,000 at a net cost to you of ??6,000.

This is less tax efficient than contributing via salary sacrifice, as you can’t claim National Insurance back via a tax return.

As an umbrella company contractor, the Government considers you a full-time employee. You’re therefore entitled to the same benefits as a permanent employee, including statutory maternity pay (‘SMP’). You can claim SMP for up to 39 weeks, and the amount you’re entitled to is based on your earnings:

Average weekly earnings are calculated using an average of the eight weeks leading up to the 15th week before the baby is due. Your maternity will be paid through your umbrella company’s PAYE system, subject to Income Tax and NI deductions as usual.

If you meet these eligibility criteria, your maternity pay can start any time within 11 weeks of the due date.

Sick pay refers to the financial support provided to employees who cannot work due to illness or injury. In traditional employment settings, sick pay is a standard benefit employers offer as part of the employment contract. However, the landscape is different for contractors and freelancers operating through umbrella companies.

Sick pay entitlements through umbrella companies are limited compared to traditional employment arrangements. Employees in permanent roles may receive enhanced sick pay benefits as part of their contract, providing a higher level of financial protection during illness.

As an umbrella company worker, you are an employee of your umbrella company, so statutory sick pay is available to you. Unlike traditional employer-employee relationships, no enhanced sick pay is available.

If you fall ill and cannot work, your only avenue is to claim the statutory sick pay allowance of ??109.40 per week, payable by your employer for up to 28 weeks.

If you have been ill for longer than seven days, you must provide solid proof of your illness. Once 56 days pass since the initial sickness period ends, employees become eligible for another 28-week maximum sickness period.

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