Reply to: Cash-basis of umbrella costing Tax-Free income

[northernladuk]

Booooom!

/thread

[lucyclarityumbrella]

Sorry for being late to the party - but I thought I would explain from this end, although I have been told that the Payroll Manager has spoken with you.

An umbrella company will usually make payment to the contractor at the point that the monies are received from the agency/end client, thus the invoice date is irrelevant. The tax is calculated at the point that payment is made and not the date of the invoice.

If an agency/end client was to make the payment prior to the end of the tax year, then this is the only way to ensure payment is prior to year end.

HTHs

[Kugel]

Ok, so I'll ask you the same question I asked HMRC, what would stop someone from earning 44k, and having the invoices 'paid' over 4 years, paying no income tax, while living like Marlon Brando in Vietnam?

Company earns 44k and pays corporation tax (so some tax is actually paid). Company pays dividends over 4 years to a shareholder. Shareholder pays no income tax - as 8.8k is within personal allowance.

What stops me from doing it? It is hard to live on 8.8k per year in UK.

why is there this loophole where a person could earn an amount in one tax year, then get paid that amount whenever their employer 'decides'.

Company is earning that amount - "invoice" - in one tax year, not you. You are paid a different amount - "wages" - as per your employment contract.

[bobbygee]

Cockwomble.

"also describes the tendency to rummage in your underwear massaging ones genitals as if looking for litter to pick up"

Unfortunately in the office today.

[northernladuk]

Great, thanks, see you in Vietnam

And thanks everyone for being gentle while taking my contracting innocence away

You are welcome.... Cockwomble.

[bobbygee]

Now, if you have your own limited company, with sufficient funds in it, then you can pay yourself whenever you want, but if you pay yourself before the money comes in, your company may end up with cash flow problems. At year end your company will probably have outstanding debtors - clients who you have raised invoices to, but they haven't paid yet, etc. That's all part of business.

Great, thanks, see you in Vietnam

And thanks everyone for being gentle while taking my contracting innocence away

[WTFH]

why is there this loophole where a person could earn an amount in one tax year, then get paid that amount whenever their employer 'decides'.

That's what happens when you're an employee. It's not a loophole, it's life. You work and get paid later. Normally it's at the end of that month, but still, you've worked for 29 days for FREE - maybe phone HMRC and ask them to explain the loophole of people not being paid daily or hourly as they do the work!
And this "loophole" is clearly explained in the terms of an employment contract.

Now, if you have your own limited company, with sufficient funds in it, then you can pay yourself whenever you want, but if you pay yourself before the money comes in, your company may end up with cash flow problems. At year end your company will probably have outstanding debtors - clients who you have raised invoices to, but they haven't paid yet, etc. That's all part of business.

[VelcroPower]

You've said it three times, and I understood it the first time.


My question to HMRC, which was NOT the question at the start of the call with HMRC is why is there this loophole where a person could earn an amount in one tax year, then get paid that amount whenever their employer 'decides'.

Whats to stop unscrupulous people holding onto invoices/payments?

The employer "decides" based on a set of terms and conditions you will have signed up to when you joined, it's not a loophole or or a scheme.

Usually it boils down to when they get paid you get paid, if they don't get paid then you get National Minimum Wage

[malvolio]

You've said it three times, and I understood it the first time.


My question to HMRC, which was NOT the question at the start of the call with HMRC is why is there this loophole where a person could earn an amount in one tax year, then get paid that amount whenever their employer 'decides'.

Whats to stop unscrupulous people holding onto invoices/payments?

Very little. Apart, of course, from audited accounts and the rules on PAYE and RTI. And the fact that the money has to come out to your account at some point, when it will be taxed.

However, in your case, that doesn't apply anyway.

[bobbygee]

That doesn't make any sense, which is probably why HMRC gave you a duff answer.

If any of us earn a total of £44k over a 4 year period we won't pay tax, unless we've got a rubbish tax code, so absolutely nothing would stop that, other than no umbrella company would do it anyway.

As you can imagine, however, it's a fairly unlikely scenario.

You're still not getting the fact that as an employee the date on those invoices will have no bearing at all on when you're taxed. The period when you are paid your wages by the Umbrella for that work does.

You've said it three times, and I understood it the first time.


My question to HMRC, which was NOT the question at the start of the call with HMRC is why is there this loophole where a person could earn an amount in one tax year, then get paid that amount whenever their employer 'decides'.

Whats to stop unscrupulous people holding onto invoices/payments?

[northernladuk]

You're still not getting the fact that as an employee the date on those invoices will have no bearing at all on when you're taxed. The period when you are paid your wages by the Umbrella for that work does.

Or when the Umbrella get's paid ....

[VelcroPower]

Ok, so I'll ask you the same question I asked HMRC, what would stop someone from earning 44k, and having the invoices 'paid' over 4 years, paying no income tax, while living like Marlon Brando in Vietnam?

That doesn't make any sense, which is probably why HMRC gave you a duff answer.

If any of us earn a total of £44k over a 4 year period we won't pay tax, unless we've got a rubbish tax code, so absolutely nothing would stop that, other than no umbrella company would do it anyway.

As you can imagine, however, it's a fairly unlikely scenario.

You're still not getting the fact that as an employee the date on those invoices will have no bearing at all on when you're taxed. The period when you are paid your wages by the Umbrella for that work does.

[WTFH]

Ok, so I'll ask you the same question I asked HMRC, what would stop someone from earning 44k, and having the invoices 'paid' over 4 years, paying no income tax, while living like Marlon Brando in Vietnam?

If that's the question you asked HMRC, I'm not surprised with the answer they gave you!

If you are working through an umbrella company, they will pay you like an employee. There will be a monthly payment run, and that's when you get paid.
It's not the date on the invoice they raise to the client.
As for your question about Marlon Brando, the answer is related to the terms & conditions you have with your Umbrella company.

[bobbygee]

1) A company will act in its shareholders interests first and its employees last, ie. there's a reason NMW and Health & Safety legislation exists.
2) It honestly makes no difference to you as an employee, but I don't think I can explain it any more differently that I already have.

Ok, so I'll ask you the same question I asked HMRC, what would stop someone from earning 44k, and having the invoices 'paid' over 4 years, paying no income tax, while living like Marlon Brando in Vietnam?

[VelcroPower]

Good question!

I would like to know if its reasonable for an umbrella to calculate on an Accrual basis, or to do so if its in their employee's interest, and if its the standard or not. (from what I've understood its a requisite for large companies anyway)

1) A company will act in its shareholders interests first and its employees last, ie. there's a reason NMW and Health & Safety legislation exists.
2) It honestly makes no difference to you as an employee, but I don't think I can explain it any more differently that I already have.