5 umbrella company myths

"Beware the unscrupulous umbrella company!"

It's important for contractors, freelancers & temporary workers to be aware of some the most common misconceptions surrounding PAYE umbrella companies.

Beware, there are some unscrupulous providers that state they can offer more money, more expenses and less tax; however the truth of the matter is; the only differences between umbrella companies are

a) Fees
b) Service levels

Watch out if an umbrella company says different

1. You pay less tax with some umbrella companies compared to others.

False! This is completely untrue. It doesn't matter which umbrella company you join, you will have to pay statutory tax amounts set by HMRC.

2. If my umbrella company has a dispensation, I don't need to keep receipts.

False! A dispensation essentially lessens the amount of administration for the Umbrella Company and HMRC.

This is because you won't be required to keep sending travel & subsistence receipts into your umbrella company every week.

However, YOU MUST KEEP RECEIPTS for your own records in case HMRC request evidence that you actually incurred the expense.

3. I can claim the maximum allowances offered by my umbrella company.

False! It's likely that your umbrella company's dispensation will allow you to claim up to a certain limit for subsistence (food and drink) and accommodation, however that does not mean that you can claim the maximum allowance every single day.

E.g. If the umbrella company allows you to claim up to £14 per day, you may actually only incur £8 a day, thus you would only claim £8 and not the full £14.

4. I can still claim expenses even if I anticipate going back into permanent work.

False! As soon as you anticipate that you will be working on one assignment (or that it may be your last assignment) your right to claim travel & subsistence expenses through your umbrella company will cease. This is because your workplace will no longer be deemed as being temporary.

5. I can avoid the 24 month rule by changing Umbrella Company.

False! The 24 month rule cannot be avoided by simply changing umbrella companies. As soon as you anticipate that your contract will run over 24 months you're right to claim travel and subsistence will cease - you cannot simply change your Umbrella Company to avoid this.

 1. What is contracting and how can I become a contractor?
 2. You've got the contract, what now?
 3. What is an umbrella company?
 4. Umbrella company myths
 5. Umbrella company FAQs
 6. Umbrella company paperwork
 7. Umbrella company expenses
 8. Calling an umbrella company
 9. 10 questions to ask your umbrella company
10. IR35
11. Paying Employer's National Insurance
12. Choosing an umbrella company
13. Umbrella company alternatives