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Umbrella Companies & National Minimum Wage Rules

Up until now, some Umbrella Companies have been paying their employees a salary below minimum wage and then making up the difference with travel and/or subsistence expenses. The processed expenses would reduce the amount of tax and NI payable which would mean that the employee would see nothing unusual about their take home pay. Unfortunately it was not uncommon for unscrupulous Umbrella Companies to process expenses for costs which had not actually be incurred which would then also put the employee and risk of future tax liabilities.

HMR&C issued regulations concerning the National Minimum Wage which came into force from January 2011. They have determined that Benefits in Kind do not count towards National Minimum Wage Pay which means that Umbrella Companies will no longer be able to include them in their calculations. The Benefits in Kind include meals, fuel, medical insurance, luncheon vouchers and child care vouchers.

HMR&C has also included a stark warning in this particular announcement; they are aware of ‘schemes’ that Umbrella Companies are using to avoid paying National Minimum Wage and have stated quite clearly that they view them as unlawful and will take action accordingly. These schemes include:

  • Paying subsistence expenses (usually in the form of a daily allowance) instead of travel expenses
  • Classifying workers as Directors
  • Holiday Pay Adjustments
  • Under recording hours worked

**** Expenses and Umbrella Companies Post 6th April 2016: Please note as of 6th April 2016, no "compliant" umbrella company will be able to process non-chargeable expenses for tax relief purposes due to a change in Legislation included within the Finance Act 2016. Click here to find out more... ****


Tax Saving Umbrella Companies

If any of these ‘tax saving’ schemes are offered to you we suggest that you decline politely or become at risk of future tax liabilities.

For more information on the new legislation, please contact one of our trained advisors on 01206 761326 or email us on