New announcement. Learn more

CHARTERED ACCOUNTANTS (ICAEW)

News and advice to help make your property business a success

Landlords TaxProperty TaxLandlords Tax ReturnsLandlords AccountsProperty Tax ReturnProperty AccountsLandlords FinancialTax ReturnsLandlords AccountantChartered AccountantsOnline AccountantOnline BookkeepingOnline Tax ReturnsTaxYour Online AccountantYour Online BookkeeperBusinessadviceAccountingVATCashflowProperty AccountantSmallbusinessBusinesstipsCapital Gains TaxExpensesInheritance TaxPropertySDLTTaxplanningCgtDividendsFurnished Holiday LettingsIhtexemptionsPAYEProperty bookkeeperTaxreturnAllowable Business ExpensesAnnual Exempt AmountBusiness ExpensesBusiness RateCapital AllowancesCapital GainsCapital gains tax propertyCashbasisComplianceDeductibleexpensesDisincorporationEmployment AllowanceFinanceFinancialmanagementGiftsHMRCHoliday Lets TaxIncome TaxInvestment Property TaxMaking Tax DigitalMakingTaxDigitalMileage AllowanceMobilephonesNICOverlapreliefPartnershipPartnershipbusinessesPensionPprProperty Company TaxProperty Tax Deductible ExpensesPropertyallowanceReimbursedexpensesRent a Room ReliefResidence ReliefSmall BusinessTax free incomeTimetoPayVAT invoice60 day capital gains limitAbolitionclass2AccrualsbasisAcquisitionsAdvisoryfuelratesAIAirBnBAlphabet sharesAmapAnnual Tax on Enveloped DwellingsAppealArtificial intelligenceAssessmentAsset disposalAssociated CompanyAssociated Company Tax RulesAutumnstatementBad DebtBad Debt Tax ReliefBaddebtsBadgesoftradeBeancounterBenefits in KindBreakeven PointBudgetBusiness adviceBusiness asset defermentBusiness coachBusiness ContinuityBusiness EntertainmentBusiness RatesBusiness Rates ReliefBusiness tipsBusinessgrowthBusinesstypesBuy or Lease EquipmentBuytoletCapital Allowances for CarsCapital GainCapitalallowancesCapitalexpenditureCar Capital AllowancesCarry Back LossesChange of Tax BasisChatGPTChild BenefitCIS SchemeCommon TenantCompanies ExpenditureCompanies HouseCompany Account DeadlinesCompany Account FilingCompany Strike OffCompany Tax Efficient PropertyCompanyassociationCompanyloanstaxfreeCompulsory Strike OffConstruction Industry SchemeContacthmrcContentmarketingContributionsCorporation Tax LossesCorporation Tax New RegimeCorporation Tax RatesCorporationTaxCostsCryptocurrencyCustomerlistimplicationsDeductible Business ExpensesDeductionsDemergerDepreciationDevelopmentDirectorsDirectors LoansDirectorsloansDisallowable Business ExpensesDiscoveryDividend allowanceDividend Allowance ReductionDividend PlanningDividendallowanceDLADomestic Items Tax ReliefDormantcompanyEmployee DiscountEmployee managementEmployeecompensationpaymentsEmployeeOwnershipTrustEndoflifeplanningEnquiryEnterpriseResourcePlanningEntertainmentEntrepreneurmindsetEquityExpenses Allowed For TaxExtrabenefitEyetestsFHLsFlippingFurnished Holiday Lets TaxGift AidGift AllowanceGrowthhacksHelp to pay tax billsHICBCHMO Licensing FeesHMRC complaintsHoldoverreliefHoliday Lettings TaxHow to apply for a Business LoanHow to Extract ProfitHumourHybridIllegaldividendsIncomeInflationary GainsInfluencersInheritance Tax Nil Rate BandInterest RatesInterestreliefInterestrestrictionISAJoint TenantKeypersoninsuranceLandlord RepairsLandlords Self AssessmentLate vat registrationLBTTLeadgenerationLeadmagnetLeanbusinessmodelLetting Agent DisbursementsLetting Agent RecharresLettingsLettings ReliefLimitedcompanyLiquidation DemergerLoaninterestLong Lets TaxLongserviceLTTMainresidencereliefManaged LetsManagement accountingMaritalhomedivorceMarriage allowanceMarriageallowanceMileage paymentMinimumwageMixedusesdltMortgage costsMortgage Interest ReliefNational InsuranceNew propertyNewcompanycarfuelratesNewnicrulesNIC 2023 to 2024NIC savingsNicdisregardNicreductionNMWNmwerrorsNon Allowable Business ExpensesNon-taxableNudgeletterOptiontotaxvatOverpayment ReliefPaperformParttimePatternofoccupancyPAYE by Direct DebitPayrollingPenaltypointsPension Payments Tax ReliefPensioncontributionsPensionsPerformance-reviewsPeriodofgracePeriodsofabsencePersonal ExpensesPersonal financePersonalallowancePersonalguaranteesPostcessationreliefPretradingexpensesProfitProfit-and-lossProfitAndLossProperty AllowanceProperty Development CompanyProperty IncorporationProperty Investment CompanyProperty investor accountsProperty investor tax tipsProperty LettingProperty Rental BusinessProperty TradingPropertycompanyRecharges by Estate AgentsRegularpaymentsReliefRent your driveRentalRentaroomResearch & DevolopmentResidential property gainsResidentialsdltRetail stock controlRetainedprofitsRevenueRoom for rent taxRtiSASalarySavingsSDLT changesSection 455 TaxSection455taxSelective Licences LandlordsSelf AssessmentSelf-employednicSelfemployedSelling OnlineSeperationServicechargesSettlementslegislationSimplified ExpensesSmallbizSmallbusinessratereliefSoftwareSpring BudgetStaffpartiesStamp dutySuccessJourneyTax Allowance on DrivewaysTax AllowancesTax BreakTax CodesTax DeadlinesTax DeductionsTax Filing DeadlinesTax Free ChildcareTax on Company VansTax positionTax ReliefTax tips for landlordsTaxbillpaymentsTaxconsequencesTaxincentivesTaxpositionTaxpositionassetsTaxreliefTaxreliefsTaxsesTerminationpaymentsTipsTrade professionalTrainingTransfer AssetsTransfer Assets Between SpousesUmbrellacompanyUndisclosedincomeUnpaid RentVAT Bad Debt ReliefVAT DeadlinesVAT DisbursementsVAT PenaltiesVAT registrationVAT Reverse ChargeVatpenaltiesVatregisteredVatregistrationthresholdWellbeingWorking from home
TAGS

Working for an umbrella company –Be aware of the risks

Working for an umbrella company –Be aware of the risks

Recruitment agencies often use umbrella companies to pay temporary workers. HMRC confirms that there is no statutory definition of an umbrella company and currently describes it as 'a company that employs temporary workers who work for different end clients',where 'the umbrella will enter into a contract with a recruitment agency that will source work from end clients'.(Tackling non-compliance in the umbrella company market – Consultation).

In effect, umbrella companies act as middlemen employing individuals temporarily who agree to provide their services to end users. Following the clampdown on the use of personal service companies under IR35, the number of umbrella companies has increased. By having an umbrella company which employs the individual and accounts for income tax and National Insurance contributions, IR35 is effectively no longer relevant.

The supply chain works by the client who needs a temporary worker contacting a recruitment agency to find that worker. The recruitment agency pays the umbrella company the assignment rate and the umbrella company employs the worker paying earnings through PAYE, making deductions for the umbrella company's overheads such as:

·         its administration fee (called 'a margin')

·         an amount to meet their employer’s NIC

·         holiday payments

·         allowable expenses

·         other amounts to cover other specific costs, e.g. apprenticeship levy.

The remainder of the payment is paid to the worker as gross pay, subject to PAYE.

Tax avoidance arrangements, known as disguised remuneration schemes by HMRC, invariably involve an umbrella company making some or all of an individual's pay in the form of a loan, salary advance, grant, annuity or any other payment, telling the individual that the loan,etc is non-repayable and non-taxable when in reality it is. The worker may be asked to sign an employment contract with the umbrella company and a separate agreement. The agreement document will often be a confirmation that the worker agrees to a loan from the umbrella company or maybe another agreement that attempts to disguise some payments as non-taxable. Many workers have limited choice over whether to contract with an umbrella company, or the specific umbrella company to contract with.

The lack of a clear definition of  an umbrella company has led to accusations that such companies take advantage of the uncertainty, denying employment rights andusing the format to reduce income tax and NIC. HMRC has also found that both the employment allowance and VAT flat rate scheme are targeted by some umbrella companies who abuse both schemes to benefit from lower levels of employer NICs and VAT respectively (where VAT is charged to their customers as usual but a flat rate of VAT is applied to their gross turnover to calculate the VAT due to HMRC).

HMRC is aware of some umbrella companies charging the worker for their services (including processing pay) and/or directing workers to use umbrella companies in which they hold an interest. Following recognition of an increased number of such schemes, HMRC has setup a special department to investigate such practices and recently undertook a consultation on 'Tackling non-compliance in the umbrella company market', consulting with interested parties and confirming HMRC's intention that there be a definition of umbrella companies, regulation of workers' employment rights, confirming minimum legislative requirements for compliance by umbrella companies and giving HMRC the power to collect an umbrella tax debt from another business in the supply chain (e.g. the initial client or possibly the employment agency).

Practical point

One of the best ways to tell if an umbrella company is compliant with both tax law and employment rights law is to look to see whether the company has accreditation with FCSA (Freelance & Contractor Services Association) or APSCo.