Umbrella Companies vary in the services they offer, so it’s important to check the specific umbrella company being used and what their exact offering/services are. However, broadly speaking, this is what they do:
- They operate PAYE for the individual contractor concerned. (The individual would be a PAYE employee of the Umbrella Company)
- They process “expense claims” on behalf of the contractor
- The umbrella company raises sales invoices (on behalf of the individual) to the third party customer in respect of that individual’s work. (if a recuitment agency arranged the contract then this invoice is generally made out to and sent to that agency)
- The umbrella company takes care of the required VAT returns.
The individual may still have their own Self Assessment Tax Return to complete (and it’s unlikely that the Umbrella company would do that).
Each Umbrella company specifies it’s own terms and conditions and how it would like to receive information from the contractor.
Example – Where there is no recruitment agency involved
Joe Bloggs (individual contractor) actually works at “Alpha Co” and uses “Brolly Co” as their Umbrella Company to take care of the paperwork.
Joe Bloggs would go to work each day and at the end of the week, would get someone at “Alpha Co” to sign off a timesheet.
Joe Bloggs would then submit the timesheet to “Brolly Co” together with any business expenses incurred that week.
Brolly Co would then send a sales invoice to “Alpha Co” in respect of the work done by Joe Bloggs.
Brolly Co would also calculate PAYE and expenses (including a deduction for Brolly Co’s own fees) for Joe Bloggs for the week and send a payslip to Joe Bloggs and arrange payment of the net pay into Joe Blogg’s personal bank account, once Brolly Co had received payment of the sales invoice from Alpha Co.
At the end of the tax year, Joe Bloggs would receive a P60 and a P11d from Brolly Co.
If Joe Bloggs’ contract ended before the end of the tax year, then he would receive a P45 from the Brolly Co.
Example – Where there a recruitment agency arranged the contract
Joe Bloggs (individual contractor) actually works at “Alpha Co” and uses “Brolly Co” as their Umbrella Company to take care of the paperwork but Recuit Co arranged the contract/placement.
Joe Bloggs would go to work each day and at the end of the week, would get someone at “Alpha Co” to sign off a timesheet.
Joe Bloggs would then submit the timesheet to “Brolly Co” together with any business expenses incurred that week.
Brolly Co would then send a sales invoice to “Recruit Co” in respect of the work done by Joe Bloggs.
Brolly Co would also calculate PAYE and expenses (including a deduction for Brolly Co’s own fees) for Joe Bloggs for the week and send a payslip to Joe Bloggs and arrange payment of the net pay into Joe Blogg’s personal bank account, once Brolly Co had received payment of the sales invoice from Recruit Co.
At the end of the tax year, Joe Bloggs would receive a P60 and a P11d from Brolly Co.
If Joe Bloggs’ contract ended before the end of the tax year, then he would receive a P45 from the Brolly Co.
(Joe Bloggs may have to complete an SA Tax Return for HMRC but since he wouldn’t be running a limited company, so he wouldn’t have to complete either a CT600 tax return or ltd company accounts at all. Joe Bloggs may engage an accountant to complete his personal SATR, if he chooses)
