Umbrella Company Myths
We break down some of the common myths that are associated with Umbrella companies
We know that you have a choice of which umbrella company you use, and we know that there are lots out there you can choose from. Essentially, your decision between companies will always be based on the level of service you receive, as all compliant umbrella companies work in the same way. However, many will make promises that seem different, and this is where you should be careful.
Everyone at iConsult will be happy to discuss with you what a compliant offering should look like, however, for now, we’ll help you understand what you should be looking for with some of the common umbrella company myths.
“We guarantee you take home over 80%!” – It’s a myth!
In terms of net pay, the only difference between one compliant umbrella company and the next will be their margin, which covers all of the costs of running the umbrella company as well as the profits of the business. If the margin is too high, you’ll likely be lining the pockets of the shareholders; if it’s too low, you should be asking how the umbrella company can provide a good level of service with competent, qualified staff with so little income to cover their overheads. Cutting corners in terms of compliance can lead to substantial issues, not least with HMRC.
A compliant umbrella company will always pay a contractor a minimum of the National Minimum Wage and holiday pay for each hour that you work before expenses can be processed. After this and allowable business expenses, the umbrella company must deduct PAYE and National Insurance. Therefore it’s quite straightforward to understand that in most cases, it’s simply not possible for an umbrella company to deliver returns in excess of 80%.
If you see an advertisement or website that guarantees this, you really should question whether the business is truly operating as an umbrella company, or whether in fact they are simply using the label and actually operating a different scheme.
“You can claim as many expenses as you like without receipts” – It’s a myth!
Some umbrella companies will tell you that they have special arrangements in place that mean that you can reduce your tax and national insurance by claiming as many expenses as you like, without receipts, or in fact without having incurred the expense at all. This is never true.
If you’re working on a temporary contract away from your normal place of work, you can claim the cost of your meals whilst at that site. Within reasonable restrictions, a compliant umbrella company may allow you to claim a ‘subsistence’ payment which will allow you to claim back £5 spent on food when you buy one meal, and £10 spent on food when you purchase two meals and are away from your permanent home for over 10 hours. Usually, you will not be required to submit receipts to your umbrella company, but it is imperative that you retain them as HMRC can ask for copies at any time.
Working with iConsult, we have procedures in place that will assist you to be comfortable that what you’re claiming is legitimate and compliant and from time to time, we will ask you to evidence your purchases so we can be sure that you understand what you can claim for.
These aren’t the only expense rules that apply, and we would be happy to discuss this in more depth with you, however, you need to be certain that the umbrella company you’re working with isn’t taking advantage of very clear HMRC rules just to attract you to them – in actual fact this could leave you with a problem later down the line.
“Offshore arrangements save tax and NI” – It’s a myth!
There are many businesses based offshore that promise to increase your tax home pay by using tax avoidance to reduce tax and national insurance. In actual fact, using an offshore company for tax avoidance is a hot topic with HMRC, who are actively looking to recover tax losses in this area and in addition, penalties and interest. So you may see a saving now but it is highly likely you’ll be much worse off in the long term.
An umbrella company works in the UK, within the UK tax system paying full PAYE and National Insurance to HMRC every month. If you’re potential umbrella company is based offshore or has its back office offshore, you should be concerned. Also, remember that sometimes the provider with its offshore status may disappear when HMRC investigate leaving you heavily hit without any support.
We are fully FCSA Accredited and independently audited by Professional Passport, you can be certain that iConsult takes compliance very seriously. If you have any questions just give us a call at 0117 374 1114 or email at enquiries@iconsultumbrella.co.uk
