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How to spot a dodgy umbrella company

April 2021 saw the implementation of off-payroll working in the private sector. This change meant that a considerable number of contractors who were working through their own limited company (PSC) found themselves in unfamiliar territory in trying to choose an Umbrella Company.

This may seem like an easy choice but there are lots of umbrella companies out there, all promising different levels of take home pay and different levels of service, so who do you believe and who do you choose?

Here are some tips and general advice for how to spot the heroes from the villains.

A hero will...

  • have a range of accreditations from supervisory industry bodies such as FCSA, APSCo etc.
  • be transparent with their margin.
  • be transparent with their calculations providing you with a bespoke pay illustration before you commit, with all costs clearly laid out. When you are paid, they should give you a full breakdown of your payment calculation (with employer-side deductions) as well as your own payslip.
  • not make deductions from your wage to cover statutory entitlements such as National Minimum Wage, holiday pay and sick pay, maternity/paternity pay are all statutory entitlements.
  • provide an employment contract and there will be no joining or leaving fee or minimum engagement period.
  • provide online functionality such as portal available 24/7 where you can submit your timesheets which is essential in ensuring you get paid on time.
  • ask you to provide information such as your ID and will also confirm your right to work in the UK.
  • will offer an auto-enrolment pension scheme. You can also expect professional indemnity insurance cover to be provided as well as employer and public liability insurance.

A villain might...

  • avoid third party scrutiny so you’ll find they have very little in the way of third-party accreditations. Also don’t be fooled by an ‘HMRC Approved’ statement – HMRC don’t ‘approve’ any company or organisation in this context.
  • have hidden tiered margins that increase depending on the size of the payment made.
  • not provide a full breakdown of your calculations because it’s possible that they will have hidden costs or extra deductions.
  • make deductions from your earnings to cover statutory entitlements meaning that they are not fulfilling their legal obligations and should be avoided.
  • advertise a rock-bottom margin but rack up hidden costs – fees for same-day payments, providing a reference or even issuing your P45 at the end of the contract!
  • involve the use of loans or offshore arrangements. If it does you should steer well clear as they are hallmarks of tax avoidance schemes and will inevitably get you into trouble with the taxman.
  • promise tax relief on travel to work expenses with no tax consequences. Be wary of these suggestions because in most cases working through an Umbrella Company you are likely to be acting under supervision, direction and control and as a result are unlikely to be able to claim for many, if any expenses.

Things to consider:

  • Salary sacrifice on personal pension contributions – PayStream are one of the only umbrellas that can support contributions into your personal pension plan through our salary sacrifice scheme saving you £100’s in not only PAYE but also in NI each month.
  • A brand you can trust - Look for a brand name, an established Umbrella. Many will claim to be the best. Don’t succumb to any beguiling claims without looking a bit deeper at the reality.
  • How old is the company - Check the Umbrella Company’s background and how long it’s been trading.
  • Customer service - What is the umbrella service like, how easy will it be to call or email them and get a quick response? The likelihood is that a dubious umbrella will not be able to actually deliver a good service to contractors.
  • Colleague recommendations - Don’t put all the pressure on yourself as to whether an Umbrella is fit for purpose - look at online contractor forums and talk to your peers or friends with experience in the contracting industry. Also take the time to read customer reviews from the likes of Google or Trustpilot.
  • Preferred Supplier Lists - You’re likely to be getting your first assignments through a recruitment agency. It may have a preferred supplier list of Umbrella Companies in which case you can consider selecting from that. A dubious umbrella is unlikely to be on it.


We hope that these suggestions are of use in helping you to avoid “dodgy” Umbrella Companies and making the right choice for you. Remember the Umbrella Company you select will be your legal employer so you’ll want to satisfy yourself that it’s an employer you’d want to be associated with.

We will leave you with this final thought and an ultimate indicator of an Umbrella to avoid – if what they’re offering in terms of take home pay seems too good to be true then it probably is!

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