Reply to: Do Umbrella companies benefit from collecting VAT?

[LisaContractorUmbrella]

Thanks for the insight Lisa
I really was just genuinely curious, I had naturally assumed there would be something in it similar to FRS for you guys simply because you are processing VAT on behalf of HMRC.

@TheFaQQer
Those figures are quite an eye opener!

So although off my original topic, lets assume these losses mount up and some go under or merge with others will the the remainder have to increase their margins?
Will Accountants then do the same because the rates are currently very competitive with each other

If so then the loss of T&S is bad for all of us whether we can still claim it or not.

Very difficult question to answer. Firstly, nothing has been finalised so, until the middle of this month, any kind of prediction is just speculation. HMRC's whole reasoning behind this legislation was to create a 'level playing field' and yet they have actually made things far less level than they were in the first place which leads me to think that they haven't quite finished.

[DallasDad]

Thanks for the insight Lisa
I really was just genuinely curious, I had naturally assumed there would be something in it similar to FRS for you guys simply because you are processing VAT on behalf of HMRC.

@TheFaQQer
Those figures are quite an eye opener!

So although off my original topic, lets assume these losses mount up and some go under or merge with others will the the remainder have to increase their margins?
Will Accountants then do the same because the rates are currently very competitive with each other

If so then the loss of T&S is bad for all of us whether we can still claim it or not.

[LisaContractorUmbrella]

Surely there will still be expenses to check and process, though? And if you've got to go through the SDC rigmarole then that's more work - or are you just going to deny all expenses?

Even if we were to go through the SDC rigmarole (which following email exchanges with HMRC is becoming a bigger rigmarole than ever!!) we couldn't process tax relief at source anyway so things will just go back to the way they were about 15 years ago

[TheFaQQer]

Well you're a cheery bunch on here today What you have to bear in mind is that there are costs to an umbrella company that are associated with checking and processing expenses; these will be lost in April (assuming nothing changes between now and then) and therefore the loss from VAT on mileage will be absorbed leaving profits as they are.

Surely there will still be expenses to check and process, though? And if you've got to go through the SDC rigmarole then that's more work - or are you just going to deny all expenses?

[LisaContractorUmbrella]

What a very cheery way of saying you'll be laying people off

I confess that we will be a couple of computers lighter and the lawyers will definitely get less work but the staff will be ok

[SimonMac]

What a very cheery way of saying I'm alright jack but the intern is fecked

FTFY

[LondonManc]

Well you're a cheery bunch on here today What you have to bear in mind is that there are costs to an umbrella company that are associated with checking and processing expenses; these will be lost in April (assuming nothing changes between now and then) and therefore the loss from VAT on mileage will be absorbed leaving profits as they are.

What a very cheery way of saying you'll be laying people off

[LisaContractorUmbrella]

Well you're a cheery bunch on here today What you have to bear in mind is that there are costs to an umbrella company that are associated with checking and processing expenses; these will be lost in April (assuming nothing changes between now and then) and therefore the loss from VAT on mileage will be absorbed leaving profits as they are.

[ContrataxLtd]

Many aren't that profitable at the moment, eg.

One umbrella (2014) - turnover £39 million, Cost of sales £38 million, gross profit £766k, wages £470k, directors £138k => operating profit £61k

Same umbrella company (2013) - turnover £35 million, cost of sales £34million, gross profit £664k, wages £513k, directors £136k => operating loss £49k

Another one I checked - turnover £348 million, operating profit £838k (although they did pay their directors £4.5 million)

As a percentage of turnover, it's not that great - but at least you can always run away with the cash and leave the employees behind

I wonder just how much that £61k operating profit is going to be hit by not having the VAT reclaim in there. I reckon, just using some very very rough figures that the whole £61k could be wiped out in an instant come April 16 just because mileage can't be claimed anymore.

687 employees each doing an average of about 4500 miles per annum could lead to a VAT reclaim of £61k.......

[SlipTheJab]

Many aren't that profitable at the moment, eg.

One umbrella (2014) - turnover £39 million, Cost of sales £38 million, gross profit £766k, wages £470k, directors £138k => operating profit £61k

Same umbrella company (2013) - turnover £35 million, cost of sales £34million, gross profit £664k, wages £513k, directors £136k => operating loss £49k

Another one I checked - turnover £348 million, operating profit £838k (although they did pay their directors £4.5 million)

As a percentage of turnover, it's not that great - but at least you can always run away with the cash and leave the employees behind

Should be enough left in the kitty for a canoe and a map of how to get to Panama

[TheFaQQer]

How profitable will they be then come April?

Many aren't that profitable at the moment, eg.

One umbrella (2014) - turnover £39 million, Cost of sales £38 million, gross profit £766k, wages £470k, directors £138k => operating profit £61k

Same umbrella company (2013) - turnover £35 million, cost of sales £34million, gross profit £664k, wages £513k, directors £136k => operating loss £49k

Another one I checked - turnover £348 million, operating profit £838k (although they did pay their directors £4.5 million)

As a percentage of turnover, it's not that great - but at least you can always run away with the cash and leave the employees behind

[Waldorf]

Possibly not very, guess it depends on how well they are setup....

Quite, this played quite a chunk of profits on the umbrella business model, they used to make quite a wedge from the interest on clients money before paying it out and to HMRC but with interest rates so low this is another hit.

I can't see a long term future for brollies, indeed I'd go as far to say that some will go bust, leaving many clients out of pocket when they finally close the door. You have been warned.

[ContrataxLtd]

How profitable will they be then come April?

Possibly not very, guess it depends on how well they are setup....

[LondonManc]

The do benefit by being able to reclaim the VAT on the employees expenses though, especially employee mileage as the VAT soon mounts up on this!

How profitable will they be then come April?

[ContrataxLtd]

The do benefit by being able to reclaim the VAT on the employees expenses though, especially employee mileage as the VAT soon mounts up on this!