Umbrella Company Fees and Costs

13.05.22

Working through an umbrella company solves a lot of the problems you’ll experience if you decide to start your own limited company. Umbrella companies should handle your taxes and ensure that your clients tender prompt payment. They’ll also offer all the statutory benefits to which an employee is entitled. But all this comes at a cost. 

Transparency and predictability are key, and Evolve CS offers you both. It’s easily said. But what does all this translate to in practice? In this post, we’ll look at umbrella company fees and costs, what they mean to you as a contractor, why they’re there, and what to consider when evaluating umbrella company charges.

Why do Umbrella Companies Charge Fees?

You’re an independent contractor. You get paid for your work, and umbrella companies receive payment and transfer this money to you after deducting tax, insurance, pension contributions, and their margin. Why should you pay them to do so? 

Top of the list is the time they’re expending on your behalf. And since they’re experts in their own right, they’re making sure you don’t have any compliance issues, tax surprises and the like. At least, that’s how it should be, and ensuring that it is will be one of your primary considerations when choosing an umbrella company. If they’re performing all the services they should, it’s quite likely that umbrella company margins will be lower than the cost of doing this work for yourself or hiring someone else to do it. 

Umbrella companies charge fees because they provide professional services that take up their time, and benefit you. Umbrella company rates differ from company to company and depend on your unique circumstances. And, yes, some deals are better than others. 

How Much Does an Umbrella Company Charge? Why There’s No Simple Answer

Umbrella companies have different approaches to charges and contractor remuneration. Those offering online calculators do so in the knowledge that broad assumptions will be made in the process. The results may not be very accurate. Ultimately, it’s up to you to contact the umbrella company in question to find out just how much they’re likely to charge a contractor in your context. Your contract with an umbrella company is the deal maker (or breaker) that really matters. Be sure you understand everything it contains before comparing it to rival offerings. 

Typical Pricing Structures for an Umbrella Company

The primary umbrella company cost is its margin. This can be expressed as a fixed cost or as a percentage. The latter is better if you have a low volume and value of paying contracts, but as your turnover increases, it could end up costing you more than it should. Fixed costs are predictable costs, and could turn out cheaper in the medium to long term. Once again, making the choice depends on your individual context. 

Your umbrella company costs will translate into tax savings. You’re only taxed on your earnings after umbrella company fees have been deducted. And, on the subject of deductions, it’s nice to know that the costs you’d have to pay anyway, for example, insurance, are handled on your behalf. Your umbrella company should provide you with payslips that show all deductions, and you might find that umbrella company costs are much lower than you expected. 

How to Investigate Working Through an Umbrella Company

Joining an umbrella company is a big decision, and we encourage contractors to “shop around.” We’re confident that you will find our offering superior, but you don’t have to take our word for it. 

Umbrella company fee comparisons are just one of the things to look at. Be sure you distinguish between net and gross fees. Your comparison should be based on gross fees, so clarify this if it’s unclear. Beware of hidden costs like entry and exit fees – read agreements carefully with an eye to this, and never sign up in a hurry. Do use take-home pay calculators as nothing more than a broad guideline, and beware of so-called “tax efficient” payment structures that could leave you with surprise tax bills and fines. 

You should also investigate benefits that keep you secure. Ask questions about sick leave, maternity rights and pension contributions. The minimum employer contribution towards pension is three percent of your earnings, and to gain this, you would have to be a member of the umbrella company’s pension plan. Your minimum contribution amounts to five percent of your earnings and you may have the right to make “salary sacrifice” contributions so that even more goes into your retirement nest-egg.

Start your journey towards working through an umbrella company with Evolve CS. Use our company as a benchmark against which you compare your options. Feel free to talk to us about competing options you’ve discovered. We’re confident that in any comparison, you’ll find Evolve CS offers industry-leading services and highly competitive rates. Informed choices are the best choices. That’s why so many contractors are choosing Evolve CS as their umbrella company. Talk to us today.

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