Contractor pay types explained – what is an umbrella company?

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by Jessica Tabinor on

    CONTRACTOR ADVICE | 4 MIN READ

  •  In our new blog series, we will guide you through the different pay types, their key points and also the advantages and disadvantages of each option.

  • Read on to find out more about contracting through an umbrella company.

Making the transition into contracting can seem like a big step but there are now more opportunities for contractors than ever with companies turning to them to plug the skill gap that they are currently facing.

Before you start there are a number of important decisions to make, one being what pay type is best for you. In our new blog series, we will guide you through the different pay types, their key points and also the advantages and disadvantages of each option.

Read on to find out more about contracting through an umbrella company…


What is an umbrella company?

Contracting through an umbrella company or provider can be a hassle-free alternative to contracting as a limited company.  Working under an umbrella company means that all your invoicing, paperwork and payroll processing will be handled by them. But it is important to understand that contracting through an umbrella company does not come with the same tax benefits as contracting through a limited company.

Important: Your umbrella company will deduct PAYE and NIC’s from your salary, as technically they are your employer. However, if you pass an SDC test, you could be eligible to obtain some tax relief on relevant expenses. Choosing an umbrella company as a pay option is typically suitable if you are undertaking a short-term contract.search morson  jobs

What is an SDC test?

The Supervision, Direction or Control (SDC) test is used by HMRC to determine a worker's employment status. A worker's SDC status is used to decide whether or not they have their income tax deducted through the Pay As You Earn (PAYE) employment status. The test is also used to determine an umbrella contractor’s eligibility for tax relief on expenses. To be eligible for tax relief, you must pass the SDC test, which will often be provided by your umbrella company.

Advantages of contracting through an umbrella company:

  • Easy set-up, simply choose your preferred company and provide them with the necessary information and start contracting.
  • All paperwork and administration is handled by your umbrella company.
  • You are entitled to all statutory employee rights.
  • Potential to receive tax benefits on relevant expenses.
  • Perfect for the short term, first-time contractors or contractors who have failed IR35.

Disadvantages of contracting through an umbrella company:

  • You must pass an SDC test to be eligible for tax benefits.
  • Your employment status will be listed as PAYE, which means you could pay the full tax and National Insurance Contributions.
  • Not an ideal option for long term or experienced contractors.



How do I choose the right umbrella company?

There are many umbrella companies out there to choose from, at Morson we work with several approved suppliers to help you find the right umbrella provider. You can find more about them here.


How do I claim my expenses if I am an umbrella contractor?

In normal VAT accounting if you incur an expense you will fill in an expense claim form and provide copies of relevant receipts, then send the form and receipt to your employer. Your employer will then refund the expense to you along with payment of your hours and account for the VAT accordingly.

If you are a VAT registered contractor and have passed the SDC test, then you could be eligible to claim back the tax on expenditure.

The example below is for a hotel bill of £120.00 including VAT

Hours: £1000.00

Hotel Net Amount: £100.00

Total VAT @ 20%: £220.00

Total Invoice: £1320.00

The VAT amount including the £20 VAT on the hotel bill will need to be paid over to the HMRC as output tax. However, you or your umbrella company will be able to use your original receipts to reclaim the input tax on the hotel bill. 

What is input tax? Input VAT is the value-added tax added to the price when you purchase goods or services that are liable to VAT. If the person or businesses that is buying is registered for VAT they can deduct the amount of VAT paid from his/her settlement with the tax authorities.


Ready to search for a new job with Morson? Click here to find your next opportunity. Or, if you’re a contractor and want to find out more about IR35 and how it may affect you, click here to read our blog series.

Cx Jobs

Import Export Supervisor

The Imports and Exports Supervisor will be responsible for delivering Import and Export of equipment into and out of Qatar. Coordination and supervision of safe receipt, storage, pick, pack, dispatch and transportation activities in order to deliver customer requirements within timescales set. Also supervises and coordinates the planning of logistics activity and the resolution of queries/issues through interface with other teams/organisations. Ensure motivation and effective utilisation of workforce, adherence to SHE, Quality and other internal and external regulations. The external movement of assets to meet operational requirements on the MOB will fall within governance of this role. In addition, the Imports and Exports Supervisor will be responsible for all assets held in quarantine and Item Discrepancy Report (IDR) on base, ensuring safety compliance of non-conforming parts are segregated and managed to prevent non-approved items being allowed into the Supply Chain. Maintains a strong working relationship with Warehousing and Repairs staff to ensure accurate transfer of items inbound and outbound to prevent processing delays. Requires an excellent understanding of International Import and Export procedures and the required Customs and Trade relations paperwork, processes and principles through which the items will be processed to allow order will be satisfied. Must understand constraints and lead times associated with the work and the importance of prioritisation and customer service. Able to apply knowledge and skills to situations of high complexity, able to interpret data trends and variances and understand the impact of these on future asset supply. Requires excellent analysis and planning skills along with excellent relationship building and problem solving skills, able to use appropriate IT systems, requires good numeracy. Requires team leader knowledge team leadership, operational performance management and reporting, people development. This person would be seen, as a professional in the field of operational supply chain activities, be able to define the processes, propose improvements and manage those improvement into the day-to-day running of the operation. Must have a working knowledge of Export Control requirements and restrictions. Institute of Supply Chain Management Level 5, NVQ Level 3 / Level 5 Award or its equivalent is desirable but not essential.

Physical Logistics & Transport Supervisor

The PHS&T Supervisor will be responsible in the operational short to medium term for the coordination and supervision of safe receipt, storage, pick, pack, dispatch and transportation activities in order to deliver customer requirements within timescales set. Also supervises and coordinates the planning of logistics activity and the resolution of queries/issues through interface with other teams/organisations. Ensure motivation and effective utilisation of workforce, adherence to SHE, Quality and other internal and external regulations. This will include managing, stock (including lifting and stocktaking), handling, distribution of materiel on base (including Classified, Secret, or National Sensitive Data (NSD) equipment to meet the operational requirements of both Forward and Depth environments. In Addition the PHS&T Supervisor will be responsible for all the on base transportation of goods to the end user using delivery vehicles and forklift trucks in the execution of these duties to meet agreed KPIs and availability output on a daily basis. Requires in depth knowledge of the workings of a warehouse / logistics operation and the importance of compliance with the MRP Part 145 regulations. Requires excellent planning and expediting knowledge and skills and can demonstrate good experience of using asset tracking / warehouse and planning systems. Knowledge of BAES / customer and supplier logistics and Release to Service (RTS) documentation. Requires excellent relationship building and problem solving skills. Requires team leader knowledge, team leadership, budget control, planning, performance management and reporting. Requires good IT literacy skills and in depth knowledge of asset tracking / ERP systems. Understands Export Control regulation and be able to apply knowledge and skills in the correct completion of documentation. Close attention to details are essential. Driving licence Forklift licence desirable but not essential Institute of Supply Chain Management Level 5 or its equivalent is desirable but not essential.

Warehouse Operative

The Warehouse Operator will be responsible for the safe discharge receipt, storage, pick, pack, dispatch and transportation activities in line with regulations and standards in order to deliver customer requirements within timescales. Maintain and update appropriate IT systems, and resolve queries/issues through interface with other teams. Understand the workings of a Physical Logistics operation and the importance of documentation in a safety critical environment. Good planning and expediting knowledge and skills and can demonstrate experience of using asset tracking / warehouse and planning systems. Knowledge of BAES / customer and supplier logistics processes. Relationship building skills in order to build working rapport with the line and suppliers and problem solving skills to ensure quick resolution of items shortages to the line. Requires good IT literacy skills and knowledge of asset tracking / ERP systems. Maintain a strong working relationship with the Receipt and Despatch/Import and /Export staff to ensure accurate transfer of items inbound and outbound to prevent processing delays This person would be seen, as a competent individual in operational supply chain activities, be able to support the processes, propose improvements and manage those improvements into the day-to-day running of the operation. Must have a working knowledge of Export Control requirements including ITAR/EAR regulations and the movement of Classified equipment Forklift Driving Licence desirable Institute of Supply Chain Management Level 3, NVQ3 Award or its equivalent is desirable but not essential.

Receipt & Dispatch Operator Hawk

The Receipts and Dispatch (R&D) Operator will under supervision receipt, storage, pick, pack, dispatch and transportation activities in line with regulations and standards in order to deliver customer requirements within timescales. Maintain and update under supervision appropriate IT systems and resolve queries/issues through interface with other teams. All inbound and outbound equipment will be managed within the Main Store and will be goods received, inspected and accounted for on the IMS System. Outbound equipment will be packaged to the relevant standard including IATA, IMDG regulations and dependent upon the equipment classification will be subject to further rules and regulations. Inventory Management will utilise the IMS system for stock location and accounting. Experienced stores person, fully conversant with logistics and warehouse systems, locations and safe handling methods. Use of special to type containers. Awareness of potential hazards caused by incorrect storage such as moisture ingress and cadmium corrosion. Basic IT literacy skills and some knowledge of asset tracking / ERP systems. Requires a working knowledge of an operational supply chain, tools and techniques, protocols and procedures. Understands where and how to gather asset information, and how to interpret this information in a range of situations. Is able to build and maintain strong relationships within the Operational organisations. Maintains a strong working relationship with the Warehouse Operator, Import and Export staff to ensure accurate transfer of items inbound and outbound to prevent processing delays. This person would be seen, as a competent individual in operational supply chain activities, be able to support the processes, propose improvements and manage those improvements into the day-to-day running of the operation. A working knowledge of Export Control requirements including ITAR/EAR regulations is desirable. Forklift Truck Licence Institute of Supply Chain Management Level 2/3, NVQ 2 / National Diploma Level 2 or its equivalent is desirable but not essential

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