Fact: This couldn’t be further from the truth! Using a bad Umbrella Company can cause your contractors all kinds of troubles; such as non-compliancy, poor service, percentage charges, the list goes on. If the contractor receives a poor service, it is more than likely that they will cause you problems too. What’s more if you’ve recommended them, it will reflect poorly on your company!

Fact:  Both EBT and offshore arrangements are deemed to be tax avoidance schemes by HMR&C and many are currently under investigation. BN66 is a prime example where contractors previously using offshore scheme are now receiving tax demands for anything up to £100,000.

Fact: A dispensation is purely to save the Umbrella Company extra admin – all large Umbrella Companies have a dispensation! Without this, the company would need to see receipts for every single expense claim that they processed.

The dispensation gives maximum amounts for the most commonly claimed expenses, for which the Umbrella Company won’t need to see receipts.

For example, if the dispensation amount for hotel accommodation is £95.00, the company won’t need to see receipts from anyone spending £95.00 or less. This doesn’t mean contractors should automatically claim £95.00 – if they spend £50, they can only claim £50!

Fact: This is in fact true, but if the contract doesn't reflect the contractor’s actual working practices, it would be of no use in the event of an IR35 investigation. If, for example, the contract states that the contractor can provide a substitute worker, but in reality they can't or a substitute would have to be vetted by yourselves or your client, they could find themselves in a lot of trouble.

If a contractor pays themselves a combination of minimum wage and dividends, and HMRC deem them to fall inside IR35, they would be liable to pay back all unpaid tax, a penalty and, in the worst case scenario, prosecuted for tax evasion. The Dragonfly vs. HMRC case is a prime example of this, whereby the contractor has been left with a massive tax bill of £99,000.

Fact: A managed service company makes payment through a combination of both PAYE and dividends; an umbrella company will only make payment through PAYE.

The Government will being enforcing the new rules with additional legislation which will allow the transfer of debts for income tax and national insurance contributions to “appropriate third parties who have been involved directly or indirectly in, and who have materially benefited from, the MSC's provision of services”.

This potentially could leave you owing a very large sum of money on behalf of your contractor! To avoid this, you should ensure your contractors are either using a PAYE Umbrella Company or a legitimate self-administered Limited Company.