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Legislation was recently introduced to stop what’s referred to as ‘false self-employment’. This will probably have affected you if you used to work through CIS whereby you worked as a sole trader whilst relying on an agency to find you work. This means that you will have paid income tax and Class 2 and Class 4 National Insurance Contributions.

Since the legislation came in agencies would have to take you on to their books and pay you PAYE if they could not prove that there was no supervision, direction and control (or the right of) over you as a worker. Rather than take on the position of employer some agencies are referring workers to an umbrella company; if this has happened to you, you will need to know the following:

The umbrella company will pay you through PAYE. They will invoice your agency for the contract rate which the agency will then pay. You will work through the umbrella company under a Contract of Employment and, as with any other UK employer, the umbrella company will have to pay Employer’s National Insurance contributions to HMRC. These will be taken from the funds received from the agency as will the umbrella company’s margin (which is around £25.00 to £30.00 per week).

As you are employed by the umbrella company under an over-arching Contract of Employment, you may be able to claim expenses for tax relief on travel and subsistence amongst other things. However, what can and cannot be claimed is decided by HMRC and not the umbrella company so you will not be able to claim more through one than another.

There are some companies who call themselves umbrella companies but are actually tax avoidance scheme providers. They will offer you very high take home pay and tell you that there is no risk to you. This is not the case and other new HMRC legislation to stop this type of thing means that, if you were to use this sort of scheme, you would be seriously out of pocket.

Unfortunately we cannot change legislation however what we can do is to make sure that you understand how it works if you are working through a compliant umbrella company. So if you have any questions with regards to working through Contractor Umbrella, then please do not hesitate to contact us on 01206 761 326.

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