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An umbrella company, also known as a PAYE company, is a business used by contractors, freelancers and the self-employed as an alternative to setting up a limited company. It can act as an employer for those who work temporary jobs.
There are advantages and disadvantages to using an umbrella business:
When you work under an umbrella company, you’re basically assigning a middle man to work between you and your clients. You sign a contract before you start working with them and, for all intensive purposes, they act as your employer. They then sign contracts with your recruitment agencies or clients on your behalf.
Your time and work is recorded via timesheets that are shared with your employer and client. You’ll be paid according to your timesheets.
The umbrella business will pay you via payroll, as if you were an employee. From your pay, they deduct Income Tax, National Insurance, pension contributions, student loan repayments, and their own fees. They will also reimburse you for any tax reliefs that you’re eligible for.
If you’re a construction worker working under the CIS scheme but you also worked through umbrella companies on other jobs, you would need your P60 for each company when completing your Self Assessment.
The short answer is, it depends. When you work for an umbrella company, you may still have to do a tax return. Check with HMRC to avoid any penalties!