Complete guide to getting paid through an umbrella company

Every contractor wants to focus on doing a great job on the contract at hand, not spending their precious time writing up invoices, chasing late payments or stressing over tax returns.

That’s where an umbrella company comes in handy.

Umbrella companies have become an increasingly popular option in recent years, offering a wide range of benefits to contractors, among them making getting paid stress-free and easy.

In this guide, Umbrella Search outlines how contractors get paid through an umbrella company so you know what to expect from your provider.

Getting paid as a contractor

Before we look at how an umbrella company pays the contractor, we’ll start by looking at how it works for self-employed contractors.

Contractors working through their limited company or as sole traders will be responsible for logging their time spent on the project to invoice the client directly.

This requires the contractor to be on top of invoicing to get paid on time.

However, this doesn’t always go to plan. Contractors are often faced with late or inconsistent payments from the client, resulting in cash flow issues and time taken to chase late payments.

On top of this, these contractors are also responsible for filing an annual tax return in the form of a self-assessment.

Here, they must declare their income, plus any expenditure related to the job, and then pay what tax and National Insurance they owe. This can often be stressful and complex, requiring the contractor to set aside enough cash from their income throughout the year to cover the tax bill.

For this reason, many contractors prefer to work with an umbrella company that takes this off their hands.

How a contractor gets paid through an umbrella company

When the contractor signs up with an umbrella company, they become an employee of their chosen provider. In turn, this means that the contractor will be put onto the umbrella company’s payroll and will be paid through Pay-As-You-Earn. With PAYE, all your tax, National Insurance and pension contributions are worked out and deducted from your salary before it’s paid to you, meaning there’s no hard work for you to do.

Typically, the contractor will submit their timesheet to the umbrella company, which is a log of their hours spent on the contract.

Next, the umbrella company will invoice the client on your behalf. The umbrella company will then pay the contractor what they owe, minus the above deductions. The umbrella company will provide you with a payslip outlining your gross pay and how much you’ve contributed in deductions.

It’s really that easy.

What are the benefits of getting paid through an umbrella company?

Clearly, getting paid through an umbrella company is a stress and hassle free way of being paid for a contractor, but there are many more benefits alongside.

Always get paid on time

Firstly, with an umbrella company, the contractor will always be paid on time. It doesn’t matter if the client pays the umbrella company late, they will always make sure you are paid on time either monthly, weekly or in some cases daily should you choose this option.

This means you can rest assured you will always get your hard-earned cash when expected. This not only gives you peace of mind, it also allows you to plan ahead and manage cashflow accordingly.

This also has the added benefit of making applying for things like mortgages or credit much easier. Showing that you have a steady, reliable income will work in your favour when applying for credit or loans.

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No more admin or bookkeeping

Self-employed contractors have to file their own tax returns, and they must be on top of bookkeeping and the admin that comes alongside this. This involves keeping a detailed record of income and expenses, as well as all records such as invoices and receipts that are part of this.

What’s more, these contractors must keep on top of their bookkeeping in order to file their tax returns in an accurate and timely manner.

Being paid through an umbrella company, on the other hand, means no bookkeeping, no tax returns and no tax bill surprises. Simply submit your timesheet and get paid.

No tax surprises

As we’ve mentioned, getting paid by an umbrella company removes the need for a contractor to do a tax return.

This means that umbrella contractors can rest assured that they won’t be faced with any surprises when it comes to their tax bill and how much they owe.

Umbrella company contractors pay tax owed as they go, rather than after a year of earning the money. This means you know exactly what you’re paying in tax each month and won’t be hit with a surprise tax bill down the road.

Think an umbrella company is for you? Let us help

Getting paid shouldn’t be timely or complicated for contractors. Having read our full guide to how a contractor gets paid through an umbrella company, you might be considering making the move to umbrella, especially if you’re looking for more simplicity, more time and less hassle when it comes to your finances.

If that’s the case, Umbrella Search is here to help.

Simply get in touch to let us know what you’re looking for from an umbrella company and what’s important to you, and we’ll do the hard work to find an umbrella company that’s the perfect fit.

Whether you’re looking for same-day payments, or want advice on pension contributions, we will find an umbrella company that fits the bill.

Take the hard work and hassle out of contracting and let an umbrella company take on those tasks for you, giving you more time to focus on the project at hand. Get in touch with the Umbrella Search team today and take the first step to finding an umbrella company that will help elevate your contracting career.

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Frequently Asked Questions (FAQs)

1. What is an umbrella company?

An umbrella company is a business that acts as an intermediary between a contractor and their end client or recruitment agency. It employs the contractor, manages admin tasks such as invoicing and tax deductions, and pays the contractor a salary through PAYE (Pay As You Earn).

2. How does the payment process work with an umbrella company?

Once you complete your work or timesheet, your umbrella company invoices the client or agency. After receiving the payment, they deduct income tax, National Insurance, and other agreed costs (such as their margin and possibly workplace pension contributions). You’re then paid your net salary, usually on a weekly or monthly basis.

3. Do I get payslips when using an umbrella company?

Yes. Just like a regular employee, you’ll receive a payslip showing your gross pay, deductions (e.g. tax, NI), and net pay. This is part of the transparency that comes with using a compliant umbrella company.

4. Am I considered self-employed with an umbrella company?

No, when you work through an umbrella company, you're considered an employee of that company. This means you’re taxed as an employee and have access to certain statutory benefits, such as holiday pay and sick pay.

5. What taxes will I pay through an umbrella company?

You’ll pay income tax and employee National Insurance Contributions (NICs). The umbrella company also pays employer NICs, which are factored into the assignment rate quoted by the agency or client — this is not deducted from your net pay, but it’s important to understand how it affects your overall rate.

6. Can I claim expenses through an umbrella company?

Due to changes in legislation, especially the 2016 travel and subsistence rules, most contractors cannot claim tax-free expenses unless they’re not under supervision, direction, or control (SDC). However, some allowable expenses may still be claimed depending on your circumstances and the umbrella’s policies.

7. Do umbrella companies charge a fee?

Yes, umbrella companies charge a margin for handling your payroll and admin. This can be a weekly or monthly fee, typically ranging from £15 to £30 per week. It’s usually deducted before calculating your taxable income.

8. Is working through an umbrella company IR35 compliant?

Yes. Since you’re taxed via PAYE, you are considered "inside IR35," meaning you pay broadly the same tax as a regular employee. This is why umbrella companies are often used by contractors working inside IR35 contracts.

9. Can I switch umbrella companies?

Absolutely. If you're unhappy with your current provider or find a more cost-effective or transparent option, you can switch. Just make sure to check notice periods, final payments, and P45 arrangements.

10. What should I look for in a good umbrella company?

Key things to look for include clear breakdowns of pay, no hidden fees, good customer service, and transparency about deductions. It is always woirth chekcing the reviews on contractor forum and Trust pilot-like sites to see how what other contactors think.