Using umbrellas and PAYE for IR35 blanket bans

If you have no choice but to use an umbrella, or go on payroll (PAYE), there’s a few things you need to consider. Here are some of our top tips.

Ask who’s footing the employment costs?

If you’re using a brolly or PAYE, you already know that your personal taxes will increase. But did you know that additional employer taxes are due? They are:

  • Employer’s National Insurance – there’s no upper limit here, so this can be quite a big chunk of cash
  • Apprenticeship levy – this stands at an extra 0.5%

Ask who’s going to be paying these taxes. If it’s coming out of your daily rate, prepare to negotiate it up, by more than you think.

Beware of fees and bent brollies

How much will you be charged either by the umbrella, or for PAYE? Keep one thing at the front of your mind here: all services do pretty much the same thing – they take a gross payment, tax it, and pay you the net. So it should be a perfect market, with prices low.

So why will some umbrellas charge you a few pounds a month, and others charge you hundreds? It’s often down to how umbrellas get new clients. They pay agencies a kickback to send contractors their way. This can be up to 50% of the umbrella’s monthly fee, and it’s you who pays it. Yes, that’s right, you’re paying your agent even more via a kickback from a brolly. This may be why your agent or client tells you that you can only use umbrellas on their list. 

Are they reputable?

Watch out for the financial risk of umbrellas. Umbrellas have gone bust before and in the process they’ll swallow up any cash that you’re outstanding from your clients. If your brolly does go under you’ll be at the bottom of the list of people with a claim for cash.

Many umbrellas are facing financial pressures due to Covid19 – check out the details on

Are they too good to be true?

Be very, very careful of umbrellas that compete on the basis of the amount of take-home pay you get. All umbrellas follow the same tax regime, and they should all, in theory, have the same take-home rates. So how come some can offer greater returns? It’s usually because they’re exploiting a grey area or loophole and it’s simply not worth getting involved.

Take for example the recent loan charge scandal: 100,000 individuals used a shady umbrella scheme which was legal at the time. The schemes were then deemed illegal, and in an unprecedented move, HMRC secured the right to demand up to 20 years of back tax payments, along with penalties. Somebody with a salary of £50,000 using a scheme for 5 years now faces a bill of over £140k.

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What rate is a good rate?

When it comes to negotiating a day rate for using an umbrella, consider the following in your calculations:

  • Your employment taxes, such as income tax and National insurance
  • Employer taxes, such as Employer’s National Insurance and the Apprenticeship Levy
  • The charges for the umbrella company – and how much goes back to your agent

And remember, you’re going to be paying full employment taxes but without the benefits of employment. You might want to re-baseline your rate to consider the benefits your permanent colleagues on your client’s site are receiving, but you’re not entitled too, and factor these into your rates. These include:

  • Bonus schemes
  • Pension schemes
  • Share purchase schemes
  • Holiday pay 
  • Company sickness pay
  • Maternity / paternity / adoption pay
  • Childcare
  • Life insurance
  • Private health care
  • Company cars
  • Gym membership
  • Subsidised canteens
  • Annual parties, incentives
  • Training schemes
  • A notice period
  • Employment rights, including the right to a tribunal

You need to make sure your new rate reflects these benefits you’re forgoing.

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