What is an Umbrella Company?

| January 31, 2011 | 3 Comments

Continuing on from last week’s post on how to claim expenses as a supply teacher, this post focuses on those oh-so-confusing “umbrella companies.” What exactly is an umbrella company? Why are you asked to sign up with one? And, Should you sign up with one? These are all very good questions that will be answered below.

What is an Umbrella Company?
Put simply, an umbrella company is a company that provides payroll services so that you, as an individual contractor, do not have to do the work yourself. These services include billing your agency for your services, submitting your expenses to the government, and paying your PAYE tax and National Insurance.

Confused yet? It gets easier:

In the eyes of an umbrella company, if you are working through a teaching agency, you are considered a temporary worker or, “contractor.” As a contractor, you are entitled to certain benefits, the main one being the ability to claim expenses. To take advantage of this opportunity, teachers join umbrella companies who do all of the hard administrative work for them. Take a look at the flow chart below to see how this process works.

Umbrella Company Process

Why are you asked to sign up with an umbrella company?
Now that you know what an umbrella company does, you may wonder why your agency doesn’t do these steps for you rather than outsourcing the work. The simple answer is that they do not want the headache! Processing payslips, expenses, taxes, and NI requires accountants and adherence to fiscal laws. Teaching agencies already have enough to worry about so they would rather just outsource this work.

Should you sign up with an umbrella company?
This is an important question with an uncertain answer. Where the topic of umbrella companies gets complicated is in whether or not you can legally claim expenses. While umbrella companies claim that supply teachers are contractors who use their home as a permanent workplace (making them able to claim expenses), others point to a court case that suggests that supply teachers’ actual place of work is the school. Therefore, they argue that supply teachers cannot claim expenses such as travel. If this is the case, then why are umbrella companies still operating? The answer is that the legality (or, at least, enforcement) of the whole situation is fuzzy at best.

In sum, it is not easy to say whether or not you should sign up with an umbrella company. Joining an umbrella company will allow you to claim expenses and put some extra pounds in your pocket each week. However, if the government ever decided to crack down on the practice, teachers may be the ones they go after for tax evasion.

What’s next?
If you want more information about the umbrella company legality issue, you may be interested in Part 2 of our “How to Claim Expenses as a Supply Teacher” article. In addition, your agency or umbrella company should be happy to answer any questions you have. There are also many valuable internet resources available—here are a few:

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Comments (3)

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  1. Steve Murray says:

    Brendan, as far as I am aware, the travel expenses would just be part of the rate or the job, they wouldn’t have anything to do with an umbrella company.

    For instance, I get £110 a day from my agency. If they ask me to work say more than 20 miles away I ask them for £120.

    They usually give it to me because I have worked for them for a long time and I am good at what I do. They often use me if they have new schools so I can make a good impression for them.

    But other agencies I have worked for won’t give me any xtra, or have offered me £2 extra.

    An umbrella company would only offer you the opportunity to claim tax relief on your travelling costs. They wouldn’t give you any more money on top of your wages from the agency.

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  2. Steve Murray says:

    I had a bad experience with an umbrella company so don’t use them now. They are supposed to be funded by the agency you are working for giving you an “uplift” in pay which is supposed to be their compensation for not having to pay NI contributions. My agency didn’t give me the uplift so I was about £50 short each week. The process is very complicated so unless you have a background in accountancy you might struggle to decide whether you are making on the scheme.

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  3. Brendan Daly says:

    What do you do if your agency has said it will not provide you with travel expenses and you do not belong to an umbrella company?

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