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Choosing an Umbrella Company?

Claims made by Umbrella Companies

The claims and promises made by Umbrella Companies vary enormously; most of them will sound too good to be true…and they usually are! Lets take a look at the usual marketing ploys used to entice new contractors...

Higher net pay claims through un-receipted expenses

The claims and promises made by Umbrella Companies vary enormously; most of them will sound too good to be true…and they usually are! There are currently Umbrella Companies advertising up to 85% retention of your income, which might sound enticing, until you hear the reality.

Certain Umbrella Companies encourage you to claim, whilst others automatically add, an un-receipted meal allowance of up to £36 per day. This is very misleading and can leave you with a very large tax bill and potential fine.

We can guarantee you that any Umbrella Company making such a claim, will have it somewhere on their website or within their T&C’s that, although they won’t need receipts to process your expenses, you will need them in-case HMRC contact you.

If you find yourself under an HMRC investigation, you will be expected to prove that you have incurred all the costs you have claimed. If you can’t provide receipts to back this up, you will find yourself in a lot of trouble - would you be able to prove that you spent £36.00 per day on meals if investigated?

ContractorUmbrella follows HMRC’s guidelines on expenses very carefully and won’t process un-receipted allowance claims for the reasons above.  We don’t require receipts for expenses covered by our dispensation, but we do perform random spot checks so it may be necessary for you to send us your receipts occasionally. We are very pro-active in ensuring our employee's expense claims are compliant - this means you can sleep well at night!

For more details, please visit our Take Home Pay Claims page.

**** Please note that as of 6th April 2016, Legislation changes mean that no compliant umbrella company will be able to process expenses for tax relief purposes via self-assessment. ****

Promises of protection from an HMRC investigation

No Umbrella Company can offer this despite their claims. At the end of the day it is your tax liability and HMRC will pursue you to reclaim any underpaid tax! The penalties and interest would also be payable by you, regardless of the fact that you were given bad advice.

Why would a company need to offer protection if it’s giving sound advice? ContractorUmbrella is sister company to a specialist firm of accountants, SJD Accountancy, so you can be sure of the advice we give you. Even if HMRC decide to contact you, you will know that you won’t have claimed anything untoward.

“HMRC Approved” Umbrella Company

HMRC doesn’t ‘approve’ Umbrella Companies. HMRC will grant an Umbrella Company a dispensation and this is where the misleading advertising begins.

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 process

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 you should automatically claim £95.00 – if you spend £50, claim £50 and keep the receipt.

For more details read our Dispensations Exposed! page.

IR35 compliant… it’s irrelevant!

The IR35 rules don’t apply to contractors operating through an Umbrella Company as your payments are processed through PAYE. Although the claim of ‘IR35 compliant’ sounds impressive, it’s completely pointless!

Act as ‘Employer’

According to new legislation Umbrella Companies must act as an employer. This means that you should sign a Contract of Employment and that you should receive the Statutory payments such as SMP, SSP, SAP and SPP; any umbrella company that makes deductions from your earnings to cover these payments is not fulfilling their legal responsibilities and should be avoided. The same applies to umbrella companies that make deductions to cover any liabilities under the Agency Worker Regulations.

Agency Recommended Umbrella Company

Some Umbrella Companies are known for paying referral fees in return for recruitment consultants sending their details onto new contractors.

Although there is nothing wrong with this in principle, it is increasingly becoming the case of who will pay the most for referrals, rather than passing on a company’s details because the consultant knows you will get good service from them.

It is also becoming more common that Umbrella Companies will form a contract with the agency, in exchange for referral fees, which locks them into passing on all their contractors solely onto that particular company. The contractor is given no choice; if they want a contract with certain agencies they will have to use the agency’s ‘preferred’ Umbrella Company, regardless of service levels or personal preference. This practise is restrictive and is rarely used to improve the contractor’s lot, more to line the agency’s pockets.

If after reading this page you have any questions or would just like to make a general enquiry, please contact a member of our team on 01206 713680 or email us at info@contractorumbrella.com.

Why not download our free guides or visit our online calculator for a realistic net pay estimate?