Umbrella company myth buster

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Contracting has becoming increasingly popular in recent years – something we’re pleased to see. The profession is now a way of life for millions of people nationwide, and the trend shows no sign of slowing down.

If you’ve ever considered contracting, chances are you will have heard a number of myths that might make you think twice about ditching “traditional” employment. If you don’t manage to separate fact from fiction, you could unintentionally land yourself in hot water with HMRC.

To help, we’ve created this handy guide to dispel these myths and assist more people take control of their own careers.

1. I can keep 90% of my pay with an umbrella company

As with most things, if it sounds too good to be true, then it usually is. Compliant umbrella companies will become your employer and operate Pay As You Earn (PAYE) income tax and National Insurance contributions. In addition to this, providers must stick to the National Minimum Wage and process holiday pay.

It’s important to understand that these obligations apply to everyone, no matter which umbrella you choose. Since all businesses have to process the same things, it’s simply not possible for one provider to let you keep considerably more than the others – so don’t be fooled!

As a result, the only difference between compliant umbrella companies should be the margin they retain and how much you claim in legitimate business expenses. So these are the numbers to look out for when choosing which provider is right for you.

2. I won’t get the same benefits as “traditional” employees

Just like the point above, this statement is a myth. Because you are an employee of the umbrella company, you’ll automatically receive the same rights and benefits as permanent workers. This means that compliant providers, like Parasol, will provide you with holiday, sickness and maternity & paternity pay as standard.

In addition, you can take out insurance policies to cover any prolonged periods off work. Prices vary depending on the type of cover you take out and your current state of health.

This combination of freedom, flexibility and the safety net of employment rights and benefits gives you the best of both worlds. That’s because you’ll be able to enjoy your new WorkStyle, safe in the knowledge that your umbrella company is there to support you when needed.

3. I don’t need to keep expenses receipts

While there’s an element of truth to this one, you’ll still need to hold on to the majority of their receipts when claiming expenses. By doing this, you can be safe in the knowledge that you’re protected in the event of an audit by HMRC or umbrella company.

Remember that HMRC can carry out an audit several years down the line, so it’s important to make sure you’re prepared. By keeping hold of your receipts, you can have peace of mind that you’ll be whiter than white if the taxman comes calling.

4. I’ll be subject to IR35 as an umbrella contractor

The IR35 rules have been put in place to stop the problem of false-self employment. As a result, they only affect limited company contractors and sole traders. Because you’d be an employee of the umbrella company, you’ll be automatically excluded from the legislation – so there’s no need to worry.

As a result, umbrella companies cannot claim to be IR35 compliant as they are by definition exempt from the rules. So that’s the fourth myth debunked!

Need more advice?

We hope this guide has helped you separate fact from fiction and given you the assurance you need to take the leap into contracting. If you still need more information, our dedicated team is here to help.

We pride ourselves on giving contractors the best advice, and tailor our suggestions to their own unique circumstances. We understand contractors inside and out, meaning we’ll be with you all the way through your exciting new career.

For more information about what Parasol can do for you, please call 0800 458 0818 or email