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I found this interesting.[/b]
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Unless it’s raining and you wanna keep dry, I just can’t see the point of them.
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It’s to avoid tax.
Silver_Surfer:
It’s to avoid tax.
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They don’t seem to do anything that a PAYE employee can’t do.
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The main thing Umbrella achieves is palming off those used to being employed PAYE with underpaid work as contractors.
You need to earn about 25% more gross per hour compared to a PAYE agency bod (like me) in order to benefit from being on Umbrella. There are plenty of firms out there though that have succeeded in paying BELOW normal PAYE going rates per hour - and still get the hapless starving employees to sign up for it.
Thus, if you’re getting £12.50ph and upwards already (days C+E as benchmark) then this is roughly equivalent to £10.00ph on a PAYE contract. “£8.50-£12.00 via Umbrella” per hour therefore does not cut it, which a lot of so-called “ads” will now give as their pay scales. Don’t fall for it. Insist on proper contractor pay if you’re going to be using Umbrella. I’ve yet to see any ads with the lower figure at £12.50 or better, so I’m not holding my breath, and thus personally, I’ll be staying on PAYE until such time that these firms stop taking the ■■■■.
Ps. I get all the normal tax offsets on PAYE such as PPE, Meal, & Fuel allowances. I never get nights out, but I assume I’d get a tax free amount for that as well, should the occasion ever arise. 
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I only know of Self Employed or Umbrella Drivers getting £1 extra per hour.
Do Umbrellas get Holiday Pay?
Self Employed have to work over 60 hours per week just to claw back
the £2800 pa they’ve lost in holiday pay.
(Based on £500 pw PAYE for a 5 day week = 28 days @ £100 pd Hol Pay)
They do save less than £8 pw on National Insurance. That seems a small reward
for no company pension (a new law that employers must provide) no sick pay,
no redundancy, no income support & no jobseekers allowance.
Umbrella costs ?
Accountant costs ?
Agencies seem reluctant to higlight the pitfalls, obviously.
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You need to pay around £2.50ph gross into a holiday pot to get the same entitlements paid as you would as full time.
This is why £12.50ph on umbrella is the same as £10.00 as PAYE as I mentioned above.
£1ph doesn’t compensate you enough, considering there’s no sick pay either. 
My own holiday pot is put into (by the firm) at a rate of around 12% from my gross taxable pay - the equivalent to an extra £1.20ph on my PAYE wages without me having to pay umbrella fees, because I’m not in it. 
No fees, and I’m still beating the “pound an hour extra” people by 20p ph to boot. 
So, if I do 12 weeks @ 40 hours x £10ph, I’m going to have a holiday pot for a week’s holiday of £576. If I choose not to take that holiday then, I can keep it banked, and take it later - It doesn’t dribble away because my average weekly hours might drop over the following weeks… Holiday pots based on “average hours” are no good. Only a defined pot works for irregular hours working people. 
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I know many Drivers who have been lured away from PAYE for
and extra £1 that doesn’t even cover the loss of their Holiday Pay, the
“45 pence per mile myth” that turns out to be worth only 9 pence (so
doesn’t even cover the cost of fuel) and food that is only worth
£1 or £2 per day.
Don’t be conned - PAYE get Holiday Pay + Mileage Allowance + Food Allowance.
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Dieseldoforme:
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I only know of Self Employed or Umbrella Drivers getting £1 extra per hour.Do Umbrellas get Holiday Pay?
Self Employed have to work over 60 hours per week just to claw back
the £2800 pa they’ve lost in holiday pay.
(Based on £500 pw PAYE for a 5 day week = 28 days @ £100 pd Hol Pay)They do save less than £8 pw on National Insurance. That seems a small reward
for no company pension (a new law that employers must provide) no sick pay,
no redundancy, no income support & no jobseekers allowance.Umbrella costs ?
Accountant costs ?
Agencies seem reluctant to higlight the pitfalls, obviously.
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You seem to have done all the sums and worked it out, yet your OP is titled “What is an umbrella company?”. And here you’ve high lighted the downfalls.
The umberella company AKA IR35 contactors legislation was designed for what it was meant for, i.e contractors. It has subsequentially been used by agencies to offer long term job seekers a very minimal tax advantage, which people being people have been keen to take up, much to the agencies advantage and the poor job seeker who thinks he’s getting a slightly higher rate for his job. Albeit he is sacrificing as you say the rest of his employment benefits for it.
I’m not sure where you get your idea of holiday pay at £100 per day. But i’ll not argue the point, my own experience of holiday pay is its nearer to £8 PH for 8 hours which equates to £64. I guess the hourly rate is a location based thing, which brings me to my next point.
I’ve worked extensivley for agencies, and i’ve been a contractor. I’m aware of the differences. Whenever i’ve worked away, on a fixed term contract or an open ended one i’ve always used the umbrella/IR35 scheme. On short term contracts, paying for digs, etc they come into their own. Of course an important point to note here is the hourly rate. It should be obvious that i never went to work away and stay in digs for an extra nicker an hour, it was a substantial difference, often double the local hourly rate. My experience is not unique, there will be many reading who have done the same. So in that context, umbrella companys/IR35 schemes are great. They are a short term taxation solution for a short term contract. They get messy when you use them to be in regular employ by a local agency, on regular work i.e exactly what they’re not meant for.
Standard advice from anyone (probably this very forum too) is to seek advice from someone. In real life, a guy will listen to what his agency tells him. Unfortunatley the advice will probably benefit the agency and not the employee. Thats how it is, thats a fact.
Umbrella schemes/ IR35 is great for short term contracts, maybe away from home, on high pay rates , short term contract ,etc… But for normal agency work, run of the mill stuff you need to be PAYE as you have alluded to.
To be honest this is a whole area of employment law that is not checked on, enforced or inspected at all and the government are quite happy to leave it as there is no complaints. The whole outsourcing of the recruitment process/job vacancy numbers counting is a joke. I’ve rang up the job centre to complain that an advert for a training course is not a job and they asked me what was wrong with the “placement”? I dont have the time to write to my MP and everyone else to let them know of the scandal of advertised jobs V real jobs.
If i can summarise my own experience in a sentance, and offer the best advice i believe its this…
If you’re working away from home with high mileage and expenses (i,e over night digs) then go the umbrella /IR35 route.
If not then tell them, no, walk away if its the only thing on offer. Tell them you only do PAYE. You can shove your P46’s in at the end of the year and you will probably get a tax rebate. Well you will if you earn what i earn, you wont if you’re doing about £700 a week like the OP, but thats another story.
OK, that wasnt one sentance, it was about four or five !!
Mike-C:
You seem to have done all the sums and worked it out, yet your OP is titled “What is an umbrella company?”
The original question was a genuine question and I did not know the full answer.
My knowledge developed as I researched the topic and asked people about it.
Mike-C:
I’m not sure where you get your idea of holiday pay at £100 per day. But i’ll not argue the point, my own experience of holiday pay is its nearer to £8 PH for 8 hours which equates to £64.
You may have fell for a sucker punch from the Agency - Holiday Pay is average pay not basic pay. I quote from ACAS Page 7: acas.org.uk/media/pdf/7/o/Ho … ay-pay.pdf
“Workers with no normal working hours:
If a worker has no normal working hours then a week’s (holiday) pay is the average pay received over the preceding 12 weeks.”
I used £500 as a fair average wage for a five day week.
Mike-C:
It should be obvious that i never went to work away and stay in digs for an extra nicker an hour, it was a substantial difference, often double the local hourly rate.
I’ve only ever seen the “golden carrot” valued at £1 extra per hour.
Mike-C:
They get messy when you use them to be in regular employ by a local agency.In real life, a guy will listen to what his agency tells him. Unfortunatley the advice will probably benefit the agency and not the employee.
For normal agency work, run of the mill stuff you need to be PAYE as you have alluded to.
My main aim is to highlight the misleading savings that people speak of,
e.g.:
The 45 pence for fuel and the £5 or £10 for food. This is NOT money in the pocket.
The tax saved on those figures is only 9 pence for fuel and £1 or £2 for food.
And finally, to highlight that PAYE Agency Drivers can also get these tax concessions.
Moving away from PAYE is not always as good as it first appears.
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Dieseldoforme:
Moving away from PAYE is not always as good as it first appears.
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I’d agree 100%. The umbrella schemes are good for what they are meant for, they’re heavily reliant on expenses to negate any tax really. When you’ve got mileage, digs, meals and you get a short term high pay rate contract then they’re great. Otherwise as you say for an extra £1 PH or thereabout they’re not worth a toss. But many guys will still fall for it either through greed at getting an extra pound (coupled with naevity) or as is often the case now from agencys…pressure. Take it or leave it.
I wasn’t aware of the holiday pay scenario you mentioned. That was my employed experience of holiday pay. I’ve had various experiences with agencies over holiday pay. I don’t think many do it now but at one time agencies would contract you to 40 hours a week, a uniform, holiday pay etc… just like a full time job. Only uncertainty was where you where tomorrow. I think them times are long gone.
I’d attribute the rise in self employed reported in the UK to be as a result of agencies using these schemes.
ons.gov.uk/ons/rel/lmac/self … rkers.html
There’s allsorts of figures banded about.And its not only lorry drivers who are pushed onto such schemes.