Umbrella Contracting job & Getting A Mortgage

Podcast: Let’s Talk Money and Mortgages

Host: Gemma

Guest: Ifthi – Trained Accountant, Mortgage Advisor, and Founding Director at WIS

Topic: How umbrella company contractors should set up and manage their agreements

Q1: What should I look for in an umbrella company agreement?

Answer:

Be cautious when choosing an umbrella company. Don’t select just because a friend recommended it or an agency suggested it.

Umbrella companies act as a payroll bureau, so their main job is to ensure your pay is properly taxed.

Your pay should be consistent across umbrella companies if your day rate is the same.

If an umbrella company promises unusually high take-home pay, it may indicate a problem or non-compliance.

Key considerations:

• Ensure your pay is properly taxed (PAYE, National Insurance, and other deductions).
• Understand the umbrella company’s fees – usually a flat monthly fee (approx. £60–£150). Avoid companies charging a percentage of income, as this is a red flag.

Q2: How do I understand my payslip and deductions?

Answer:

A proper umbrella company will provide a payslip illustration showing:

• Gross income
• Deductions (PAYE, NI, apprenticeship levy, umbrella fee, pensions if applicable)
• Net take-home pay

You can verify deductions via the HMRC website, but umbrella fees are added on top.

Anything that seems “too good to be true” should raise concerns.

Q3: What practices should I avoid?

Answer:

Dividends from umbrella companies or offshore payments – illegal and banned by HMRC.

Claiming excessive expenses – almost all contractors will not be allowed to claim additional expenses.

If your payslip shows less than what you receive in your bank account, it can raise issues with lenders and hinder mortgage approval.

Q4: What if my umbrella company has not been compliant?

Answer:

Rectify your tax immediately:

• Declare previously untaxed income
• File amended tax returns
• Pay any owed tax

Keep your tax records up to date before applying for a mortgage.

You can continue with the same umbrella company if they now deduct and pay the correct tax, but consider switching if prior errors raise doubts.

Report any illegal structures to HMRC, especially if they involve tax evasion schemes.

Q5: Can agencies force me to use a specific umbrella company?

Answer:

Agencies may recommend a specific umbrella company, especially for IR35 compliance.

You have the right to choose an umbrella company that correctly deducts tax.

Ensure your pay is taxed correctly to avoid future HMRC penalties, interest, and debt accumulation.

Q6: How can WIS help umbrella contractors?

Answer:

WIS offers support through:

• Accountancy services – filing tax returns, liaising with HMRC
• WS Umbrella – ensuring compliant deductions

Contractors can rely on WIS to manage tax compliance and correct payroll processing.

Q7: What should contractors do to ensure they choose the right umbrella company?

Answer:

Avoid choosing based solely on:

• Friends’ recommendations
• Agency suggestions
• Promises of higher take-home pay

Verify:

• Directors’ qualifications (e.g., chartered accountants)
• Company track record on Companies House
• Transparency of fee structures and payroll practices

Do due diligence before starting an assignment to avoid penalties and legal issues later.

Conclusion:

Always ensure umbrella companies are compliant, transparent, and charge reasonable fees.

Pay the correct tax to avoid HMRC issues and ensure mortgage eligibility.

WIS can provide guidance and support for both mortgage applications and umbrella payroll compliance.

Reminder: Your mortgage is secured against your property, and repossession is possible if repayments are missed.