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Are you thinking about switching umbrella companies? Or maybe you’re considering moving from operating as a limited company contractor to becoming an umbrella company employee?
This comprehensive guide will walk you through the switching process, answer common questions, and help you make an informed decision.
Why Should You Switch Umbrella Companies?
Whether you’re changing to a new umbrella company or transitioning from a limited company to umbrella employment, the process is simple and straightforward. Switching allows you to select a payroll method and employer setup that best suits your needs.
Contractors often switch umbrella companies for several reasons, including:
Paying high administrative fees
Experiencing poor customer service
Concerns about umbrella company compliance
Your umbrella provider should give you confidence that your finances are managed securely and transparently.
Alternatively, if your contracts fall inside IR35, moving from a limited company to an umbrella company might be the better option. Umbrella employment eliminates the need to manage your own accounts and prepare for tax deadlines, freeing you to focus on your work without administrative hassles.
Benefits of Switching to an Umbrella Company
If you’re switching from a limited company to umbrella payroll, you’ll enjoy several advantages:
Easier mortgage and loan applications due to continuous employment by one employer
Stability and security of being treated like a full-time employee
Flexibility of contracting without the administrative burden
Professional handling of your pay and statutory deductions
At Danbro Umbrella, employees enjoy exclusive perks through Danbro Rewards. What’s more, with Umbrella PLUS, you gain access to discounted financial planning services and valuable medical and dental cash plans.
Image: Everything included when you join Danbro Umbrella
How to Switch to Umbrella Employment
Ready to make the switch? Here’s a step-by-step overview:
Decide what to do with your limited company — close it down or keep it dormant. This depends on your situation, so consult an accountant for tailored advice.
If your closing your company, you might need to appoint a liquidator, or you could close it informally by notifying Companies House. The dissolution process can take up to six months, but you can join an umbrella company during this time.
Notify HMRC to stop Corporation Tax, payroll, and VAT registrations. You’ll need to file final accounts and pay any outstanding tax liabilities.
For more information on closing down your limited company, visit the GOV.UK website.
Choosing the Right Umbrella Company
Before registering, it’s important to first research and carefully select the umbrella company that best fits your needs. To do this, check reviews, compliance status, and fees to make an informed decision.
For additional support, check out our blog which offers detailed guidance on what you need to consider when selecting an umbrella company.
Before officially joining an umbrella company, be sure to request a take-home pay illustration and thoroughly review the umbrella company’s margin. Additionally, for an initial estimate of your potential earnings, you can use our handy take-home pay calculator.
Once you’re ready to make the switch, don’t forget to request a P45 from your current umbrella provider. This ensures that your new employer can accurately calculate your tax. Also, remember that a P45 serves as an official record of your earnings and tax deductions up to your last day with your previous employer.
What is the Difference Between Umbrella and Limited Company?
| Umbrella Company | Limited Company |
Employment Status | Employee of the umbrella company; payroll handled | Self-employed owner of the company |
Tax & NI | Tax and National Insurance deducted at source | Salary plus dividends, potentially more tax-efficient |
Admin Support | Umbrella handles all admin and compliance | You manage all administration |
Costs | No setup or exit fees | Setup and accounting fees apply |
Benefits | Statutory sick, maternity, paternity, and holiday pay | No automatic employment benefits |
Best For | Contractors wanting simplicity and benefits | Contractors with longer contracts |
Reporting Non-Compliance
If your umbrella company is handling your pay non-compliantly, you could face penalties. Additionally, if you suspect the umbrella company you’re switching from is non-compliant, failing to meet HMRC’s legal, tax, and regulatory requirements, it’s important to report it. Signs of non-compliance include:
- Improper payroll practices
- Failure to deduct the correct amount of tax
- Failure to deduct the correct amount of National Insurance
- Involvement in tax avoidance schemes
- Withholding employee benefits, such as holiday pay, maternity pay, paternity pay and statutory sick pay
- Breaching employment rights
Start by gathering evidence such as payslips showing incorrect deductions, emails with unexplained discrepancies, contract details (lawful or unlawful deductions), misleading claims (e.g., unusually high take-home pay promises), or pressure to join tax avoidance schemes.
Next, report your suspicions of tax avoidance schemes or other illegal practices to HMRC or any professional bodies, such as the FCSA. Include your relevant evidence that proves unethical or non-compliant practice.
If you work through an agency, then ensure they are made aware of the umbrella company’s alleged non-compliance. Include all your relevant evidence supporting your claim and request that your agency also take appropriate action.
Make sure you follow up your report and seek updates. In addition, avoid posting information in the public domain until the professional body or HMRC has a verdict on the suspected umbrella company.
Most importantly, switch to a compliant umbrella company you can trust.
So, if you’re unhappy with your current payroll option, it’s easy enough to switch umbrella companies. By moving to a compliant umbrella company that suits your needs, you can benefit from better support, compliance and potential financial advantages. If you have any further questions on switching umbrella companies and your payroll options as a contractor, then get in touch with our team.
