Is Umbrella Company paying the right tax?

16 Jul, 2021

Whether you're new to contracting or simply concerned about how IR35 will affect you, it's essential to understand your options as a contractor in the UK. While operating under an umbrella company may not be as tax-effective as operating through a limited company, it does have certain benefits that may outweigh the administrative and tax compliance burdens associated with working through a limited company.

In this blog, we look at how umbrella companies operate and how can you ensure that the umbrella company is paying the correct amount of tax.

Is Umbrella Company paying the right tax?

How Umbrella Company engages the worker?

  1. Umbrella companies engage workers through an overarching employment contract. This is a type of contract that ensures continuous employment regardless of whether the worker is working on a client assignment or not.
  2. After signing the contract, a worker is required to complete and submit timesheets detailing their working hours on a weekly or monthly basis, depending on the nature of the billing agreement. Once the worker submits the timesheet, the umbrella company will generate an invoice for the agency (or end-client, if no agency).
  3. Once the Umbrella Company receives payment from the agency or end client, they deduct income tax, employee national insurance contributions and pays employer national insurance, and pension contributions (if opted for) and submits them to the HMRC on behalf of the worker.

Choose a compliant umbrella firm – and you will have no worries. Your tax affairs will be in order, you will be paid on time, you will have access to Employment Benefits, and you will have the freedom to join and exit as frequently as you like. Contracting with compliant umbrella firms is a boon!

Also See: Can I Make Personal Pension Contributions Through Umbrella?

How to ensure your umbrella company is paying the right tax?

If you want to verify whether the umbrella company is paying the right tax, you can do so by setting up a personal tax account. We always encourage all our workers to set up a personal tax account where you can easily access and edit your personal tax information. The personal tax account allows you to handle your tax affairs without calling or writing to HMRC. After creating a Personal account with HMRC, it becomes simple for you as a worker to verify your records and manage your tax information.

Also See: Holiday Pay For Umbrella Employee: How Does It Work?

Benefits of using a personal account

  1. Check your Income Tax estimate and tax code.
  2. Completing, sending, and viewing a personal tax return.
  3. Check your job income over the last five years.
  4. Check the amount of income tax you paid over the last five years.
  5. Keep track of the tax forms you've submitted online.
  6. Check your state pension.
  7. Check that your Marriage Allowance is accurate and up to date.
  8. Notify HMRC of a change of name or address.
  9. Check or update any benefits you receive from your employers, such as a company car and medical insurance.
  10. Find your National insurance number.

Why DNS Umbrella?

We offer the following benefits:

  • Receive payments on time and in accordance with HMRC regulations.
  • You are entitled to employment benefits like a permanent employee, such as statutory sick payments, maternity/paternity pay.
  • You will be treated as an employee in the eyes of the law and tax authorities regardless of whether you are inside or outside IR35.
  • Maintaining a relationship with the same umbrella company ensures continuity of employment, which is necessary when applying for mortgages.
  • We handle and take care of all your tasks, including administration, invoicing, payment collection and payroll processing.
  • You are not required to file an annual self-assessment form, unlike limited company directors, unless you generate other untaxed income from other sources.
  • Access to our insurance package of employer’s liability, public liability and professional indemnity insurance.
  • Access to our employee reward scheme.
  • Option of claiming tax relief on allowable business expenses.
  • If you work with multiple agencies, you will have continuous employment across all of your contracts.

If you have any questions on claiming employment expenses or want assistance in setting up a personal tax account, please speak to one of our Umbrella company experts by contacting us on 020 3500 2615 or send us an email at

Also See: Expense Claim Through Umbrella