What is an umbrella company?

What is an umbrella company?

An umbrella company is a company that employs contractors who work on temporary contract assignments, often through a recruitment agency. It is the best of both worlds, all the flexibility of being a contractor working on numerous assignments, along with all the stability and benefits of being an employee.

From a contractor’s perspective, umbrella employers provide you with full employment rights, all statutory benefits including holiday pay, maternity pay, paternity pay, sickness pay, pensions, redundancy pay and adoption pay.

A contractor is an employee of his or her umbrella employer and with that relationship comes a responsibility for the umbrella firm to provide HR support to its contractors, in the same way as any employer.

A responsible umbrella company cares for its employees, the contractors and, when it comes to pay, umbrellas consolidate this from multiple hirers into one single pay packet.

This is particularly important for anyone who gets called to work at short notice, at different locations for different clients on different days. Rather than lots of separate pay packets, just one payment takes care of it all so that contractors can simply get on with their work.

How does Cogent Umbrella work?

It is very simple. You become an employee of Cogent Umbrella. Once you have secured a contract you instruct your agent to send us an agreement, as your employer, for signing. There will also be an employment contract in place between you and us.

Each week or month you instruct us to invoice the agency/client based on your time sheet. We then pay you a net salary after deducting national insurance contributions and income tax on all your earnings.

Is IR35 a concern when working through an umbrella?

No, an umbrella company is a contractor’s employer and therefore a contractor is an employee. IR35 is only applicable to self-employed contractors working through an intermediary, usually their own personal service company. By virtue of being employed by the umbrella, there is no IR35 status to be concerned about.

Why you should not use a non-compliant umbrella scheme?

There have been a number of schemes that aggressively target professional contractors to sell their product of higher take-home pay.

Sometimes, these schemes label themselves as “umbrella”, but they are not umbrella at all. They “work” by paying a small portion of contractors’ earnings via PAYE and then disguising the remaining larger part of a contractor’s income as something else, often an offshore loan. Other examples include shares, annuities, employee benefit trusts and capital advance schemes. HMRC regularly issues Spotlights to warn about tax avoidance schemes.

Most of these schemes will simply result in significant future tax bills once HMRC catches up with you. Anything that sounds too good to be true most probably is.

In essence, the key message is to ensure that your chosen umbrella pays 100 per cent of your income through PAYE. Any business that splits your income so that it isn’t all taxable, or offers an unrealistic level of retained income is unlikely to be doing so compliantly with UK tax regulations.

Why use Cogent Umbrella?

You can sleep easy knowing that Cogent Umbrella is fully compliant and will:

  • Give you all statutory rights & benefits of employment (holiday pay, sick pay, pension etc)
  • Give you the flexibility to work for numerous different end-hirers
  • Consolidate your pay from numerous hirers into one pay packet
  • Process the full amount of your gross pay through PAYE as an employee
  • Simple & easy to understand payslips

Got any questions?