Umbrella Company Fees (Margin)
Navigating the intricate landscape of UK tax legislation is no easy feat, especially for contractors. Amidst the myriad of regulations, one term stands out prominently: Umbrella Companies. But do umbrella companies calculate their fees? And what is a ‘margin’?
In this comprehensive guide, we delve deep into the heart of umbrella companies. Whether you’re an aspiring contractor or a seasoned veteran seeking clarity, this guide aims to empower you with the knowledge to make informed decisions and remain compliant.
Umbrella Company Fees (Margin)
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.
How Do Umbrella Companies Collect Their Fees?
Umbrella companies invoice the end client on behalf of the contractor, and the amount received is known as the ‘assignment income’.
To calculate the contractor’s gross pay, umbrella companies deduct statutory and non-statutory employment costs from the assignment income. The umbrella company’s margin is one of these deductions.
There is no administration for the contractor, and they do not receive an invoice from the umbrella company. The fee deduction is made directly from the assignment income received from the end client.
Do Umbrella Companies Charge VAT?
A contractor working via an umbrella company does not need to be concerned with VAT.
The umbrella company itself should be VAT registered and will add VAT to the invoices issued to end clients. The umbrella company will then pass this VAT directly to HMRC. The contractor never sees VAT and is not impacted by it.
How Much Do Umbrella Companies Charge?
The umbrella market is highly competitive, with most suppliers charging between £25 and £35 per week. Supplementary fees may be charged for services like salary sacrifice pension contributions as they are an additional administrative burden for the umbrella company.
Remember, lower prices don’t necessarily mean better. 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.
A reputable umbrella company should provide you with support and advice, promptly responding to emails or calls.
Percentage Fees
In the past, some umbrella companies charged percentage fees, with the amount deducted being a proportion of the total amount billed to the client. This practice has largely stopped, and most umbrella companies will charge a fixed fee, regardless of your earnings.
Any umbrella companies that charge a percentage fee should be avoided.