What is an umbrella company and how does it work?

An umbrella company employs temporary agency contractors. For a small cost, we are able to take care of your payroll and other admin, which allows you to focus on the most important tasks. It’s so simple – you complete the work for the client and invoice us. We invoice the agency and pay you as our employee. Easy!

What are the benefits of an umbrella company?

It’s hassle-free! We will be your employer and you will receive full employment rights, including a workplace pension scheme, statutory payments for maternity/paternity/sick leave and holiday pay. Being a permanent employee also helps you to secure mortgages and loans as you will have continuous employment, even though you may work with multiple agencies. We are IR35 compliant.

How is your pay calculated through an umbrella company?

You receive your weekly/monthly pay minus the relevant fees and required taxes, which are deducted automatically.

What is a sole trader?

A sole trader is someone who has sole proprietorship over their company and work and is legally entitled to the full profits (after tax has been paid) made by it. They are liable for all losses.

What is an umbrella company?

An Umbrella Company (like Propeller Pay) is a third-party employer that employs temporary agency contractors. They will take them on as employees to manage their payrolls, tax contributions, national insurance, and other administration to simplify the relationship between the contractor and subcontractor.

What is a limited company?

A Limited Company is a type of company that is limited to what they have invested or guaranteed in the company. In comparison to being a sole trader, the company is legally separate from the person who owns or runs the business.

What is CIS?

CIS stands for Construction Industry Scheme. It is a series of rules created by HMRC to prevent tax evasion in the construction industry.

What is the IR35?
Who Do the IR35 Rules Apply to?

You can check whether the rules apply to you on the gov.uk website:  Check employment status for tax - GOV.UK (www.gov.uk)

However, you are likely to need to pay IR35 if:

  • You provide services through an intermediary
  • You receive services from a worker through their intermediary
  • Or, you are an agency providing workers’ services through their intermediary

Propeller Pay is IR35 compliant and… will manage these transactions for you.

Which is best for me?

We have more detail on the linked pages above, but the breakdown is:

  • If you want more time and employment benefits, working for an umbrella company may be best.
  • If you want to make more money and are confident with accounting, working as a limited company may be better for you – but you may be subject to the IR35.
  • If you work as a sole trader or subcontractor in construction, CIS will cover your taxes and national insurance contributions.
What are the differences with invoicing between an umbrella company and a limited company?

Under an umbrella company, you submit your timesheet to them, and they invoice the agency. If you set up a limited company, you will invoice the agency directly.

What are the differences with paying tax between an umbrella company and a limited company?

With an umbrella company, they will deduct the tax before you are paid. With a limited company, you must make sure that your company and personal taxes are paid on time.

Do I need to complete a Self Assessment?

All directors of limited companies must complete annual tax returns. If you work for an umbrella company, there is no need to do this unless you earn extra income which is not taxed in addition to your umbrella earnings.

Am I a director or an employee?

If you set up your own limited company then you will be the director, and if you work under an umbrella company then you will be an employee (of theirs).

What is a limited company?

A limited company is a private company whose owners are legally responsible for its debts to the extent of the amount of capital they have invested. If you create a limited company, you will become a company director. You will need to submit accounts to Companies House annually and meet your tax deadlines.

What are the benefits of a limited company?

One of the main benefits of a limited company is that it is the most tax-efficient way to operate. You pay yourself a basic salary (usually quite low) and the remainder is drawn from dividends (which are not subject to National Insurance contributions). As Company Director, you have lots of flexibility over when to take income out of the company, again resulting in tax planning benefits.

How is your pay calculated through a limited company?

You pay yourself through the company and you must deduct any relevant fees and required taxes yourself.

How Do We Calculate Your Pay?

Send us your timesheet, and we’ll send it to your client. Via Propellor Pay, you’ll receive your weekly or monthly payment with the necessary tax and fees deducted.