Basically umbrella companies provide freelance/contract/supply workers with the benefits of a limited company by paying them through their company (if that makes sense). They are paid by the workers' agencies for the work they have done, usually on a weekly basis. They then do the payroll for the workers taking a commission. The workers benefit by claiming tax free expenses but they are also charged employers' NI. Provided you aren't being asked to do the payrolls the book-keeping should be pretty straightforward.
Be very careful as umbrella co's is a complex area and unless you know the ins and outs, beware!
There are some good ones and bad ones and if you do not have experience of them, it is very hard to know. I deal with many different umbrellas on a daily basis but if you are just doing the bookkeeping, you shuold be ok, its the payroll side of it that needs careful consideration.
Hi, I didn't take the job. In the end I thought if it is something that I am not 100% comfortable with then I am best staying clear and stick to what I know. A bit disappointed as don't like turning away work.
I have been contacted by the company again, and I have agreed to do the bookkeeping. Can I ask a question though (getting my head around umbrella companies), the sales invoice that the ltd company produces shows the workers name, hours worked and hourly rate. The Hrs x hourly rate is shown as net fees, plus VAT is gross fees, invoiced to the employment agency.
I haven't been provided with bank statements (requested) so do I assume that the gross fee is paid by the employment agency. When this money is received the ltd company then pays out the wages to the workers? Where are commision charges usually found? I thought it would be on the sales invoice.
The ltd company hasn't given me any details of payments out to workers or HMRC. Hence why I'm trying to figure out how it works. Am I right in saying that I need these details from bank statements; the information isn't taken off the sales invoices are they?
I've literally got 10 sales invoices and 20 purchase invoices to process, to me this isn't complete and I need extra information to do a P&L.
The umbrella has a contract to supply with the employment agency. The person they supply is employed by the umbrella company as a member of staff and the unbrella is responsible for all PAYE and NI, including employers NI.
The guy will work somewhere and will complete a timesheet. From this timesheet, the umbrella will invoice the employment agency for the hours x rate agreed, plus VAT.
The agency pay the umbrella co. The umbrella co work out the net pay to the contractor taking into account any expenses (ie travel, subsistence, tools etc allowed! be careful on this one) and the umbrella fee (normally around £20-£30 per timesheet). The umbrella pay the contractor.
Thanks for the reply. Things have become clearer now the bank statements arrived today. I can see the payments going out to the contractors once the money has been received from the agency.
I don't have anything to do with the wage calculations, just recording of incoming and outgoings, so I think its looking more accurate now.
In a perfect world that might well be true Frank. Unfortunately not all umbrella companies are as good as that makes them out to be. I have a friend (an IT specialist) who contracted through an umbrella company and after they slowly and steadily racked up an extra charge here, a new fee there, and so on... he got so hacked off that he formed his own Limited Company in April this year. In total, from a few pounds per time sheet, after 6 months they managed to rack up the costs to over 50% of every weeks earnings.
