As soon as you work through an Umbrella Company you must set aside any idea that you are “Self Employed”. You become an employee of the Umbrella Company and it is in that capacity that you would be working. The Umbrella Company is your employer.
All UK employers, including umbrella companies, are required to make payments each month to Her Majesty’s Revenue and Customs (HMRC) for Employers’ National Insurance Contributions. Whilst you may not be liable to pay Employee’s NI contributions your employer still has to pay Employer’s Ni contributions and would make that payment to HMRC from sums received in respect of your assignment work.
Unless the relationship is direct with an end client it would not be for the Umbrella Company to negotiate hourly/daily rates of pay. That would normally be done by the recruitment agency.
In order to work in the UK you may need a work permit or a visa; you should check whether or not this is the case before you approach an agency or an Umbrella Company. Follow the link to find out more:
You will also need a National Insurance Number which is a personal number that is used to record an individual’s NI contributions and credited contributions. You should apply to the Department of Work and Pensions as soon as you begin work. You will have a face to face interview and you may need to fill in a form as well. You will be required to provide certain documentation for the interview – more information can be found here:
If you work through an Umbrella Company you must ensure that you have a UK bank account so that payments can be made to you via electronic transfer. This website may be useful:
An Umbrella Company will pay you through PAYE (Pay As You Earn) which means that, if you have no other source of income, you will have no additional tax liability at the end of each tax year, which runs from April to April.
When resigning from your current role to accept another, there are some important things to remember.
You should examine your contract to ensure that you are aware of everything that you need to be. You should provide notice in writing and agree a leaving date according to the notice periods set in the contract. Do this in a professional and gracious manner and do not burn your bridges with that company. You never know if you will return to the same client at a later date, take up another role through the same agency, or need either party as a reference.
It is important to keep ‘networking’, so speak to colleagues and maybe even obtain their consent to be a referee for you – remember to keep building up your contacts – and keep in contact with them after you have left if you can!
If you do not personally hand in your notice, and this is emailed for any reason, it is worth getting them to confirm receipt. Ensure that you communicate well with all parties, so that everyone is clear on the situation.
I have seen a lot of “umbrella” alternative companies, like bestpay, betterpay, morepay, breezewealth, choicepremier, etc that promise to give you up to 90% of your contract value after tax in a completely legal way.
This of course seems to good to be true, however, if it was illegal there wouldn’t be so many companies and websites to promise those things, as they would be illegal.
Could you please advise on this, what is your opinion, is it legal and fully compliant with HMRC and what is the trick if there is any?
The schemes you are referring to are classified as ‘aggressive avoidance’ as they rely on sham arrangements which have no purpose other than to avoid tax. Whilst tax planning and tax avoidance are not illegal they are certainly under the spotlight for HMR&C and there have been a number of cases recently in which contractors using such schemes have found themselves with extremely large tax bills.
HMRC currently have the power to impose penalties of 100% of the tax owed and also interest on the total debt. It is a very complex area of tax law and the appeal of such schemes will depend on how risk averse you are but I would suggest that, if you are considering such a scheme, that you avail yourself of all the facts and all the risks. Most scheme providers will try to give reassurance by saying that their scheme has been checked by a ‘prominent QC’; this is essentially meaningless as it will offer you no defence in the event of an HMRC enquiry.
The fallout from a very widely used scheme is demonstrate here http://forums.contractoruk.com/accounting-legal/77944-no-retro-tax-campaign-against-section-58-finance-act-2008-a.html
How safe is it to join the umbrella company where they give commercial loans..is it approved by HMRC?
Firstly, HMRC do not ‘approve’ anything and, secondly, a commercial loan is a payment of monies to a business which is repayable over an agreed term or on an agreed date. If these are not the terms offered by the scheme provider I would consider it to be a sham arrangement with the sole purpose of avoiding tax and not simply unsafe but actually high risk.
Is it a myth an offshore Umbrella Company can reduce my tax and NI liabilities because UK tax regulations do not apply to them?
Using an offshore Umbrella Company can do the complete opposite potentially, leaving you facing a large tax bill and fine, as they have actually been illegal since 1987.
This is in fact true, but if the contract doesn’t reflect your actual working practices, it wouldn’t help you in the event of an IR35 investigation. If for example, the contract states that you can provide a substitute worker, but in reality you can’t, you could find yourself in a lot of trouble. If you are being paid a combination of minimum wage and dividends, and the Inland Revenue deemed you to fall inside IR35, you would be liable to pay back all the underpaid tax, a penalty and worst case scenario you could be prosecuted for tax avoidance.
This is not relevant to umbrella companies anymore, as you can not claim travel and accomodation expenses. As a limited company director providing your workplace meets HMRC’s definition of a temporary site; whereby your attendance lasts no longer than 24 months. At the point you know that your contract will last beyond 24 months, you must stop claiming expenses. If for example, you agree a 36 month contract, from the outset no expenses at all can be claimed against the contract.
There is a further rule which means that when an individual spends more than 40% of their time at a workplace for an assignment which has exceeded 24 months, travel and accomodation expenses will also not be permitted.
If you continue working for the same client but change site after 24 months, the new workplace must be geographically different to the previous workplace or there must be a significant change to your daily commute to be entitled to claim travel and accommodation expenses. For example, if the new workplace is a different building within the same road, then no expenses are permitted to this site. If daily mileage to one workplace is 15 miles and the new workplace is 12 miles albeit in the opposite direction, there is no significant change the daily commute and therefore no expenses are permitted to be claimed.
If you have previously claimed expenses to the same site under a different arrangement, this must also be taken into account against the 24 month rule.
Yes, every employer will be obliged to make arrangements to automatically enrol their workers into a qualifying workplace pension scheme if those workers:
- are at least 22 years old but have not yet reached State Pension Age;
- earn more than the minimum earnings threshold in the relevant pay
- reference period (this has been set at £8,105 per year for tax year 2012/13, which is the PAYE income tax threshold);
- and work, or ordinarily work, in the UK under their contract.
Such workers are known as eligible jobholders and they must be automatically enrolled.
From 6th April 2017 Umbrella Companies, as employers with a payroll figure over £3m per annum, have a legal obligation to pay the Apprenticeship Levy contributions to HMRC. These contributions are made from the funds received from the recruitment agency/client with whom the Umbrella Company will have a business to business contract. The Umbrella Company will also deduct its margin from the contract value.
If you work for an mbrellau company under an over-arching contract of employment, such as Contractor Umbrella and your salary is calculated as the contract value, less the Umbrella Company’s margin, less the amount payable to HMRC for employer’s NI and the Apprenticeship Levy. That salary will then be subject to income tax and employee’s national insurance contributions.
Unfortunately no after the 05/04/2016 you could not claim for travel between your home and that workplace is regarded as ordinary commuting and any travel costs do not attract tax relief.