Up to 90%

[DaveB]

You would then be paid 90% of the invoice amount minus the VAT - so 40*4*£50/100 * 90% = £7200 and have no income tax, NI, corporation tax or VAT liability as the umbrella has (supposedly) dealt with all of this.

And the way they supposedly deal with it is to class the bulk of the payment to you as a loan, which attracts no tax. If HMRC challenge this (and they will) and the tax tribunal agrees the loan was a purely artificai arrangment that was never going to be repaid, then it all becomes classed as taxable income.

So as Lisa said above, you work the hours and submit the invoice. The Umbrella then "loans" you the money you have earned in order to avoid it being classed as income.

What happens should the loan ever be called in? How will you repay it? What effect will it have on your credit rating to be that much in debt to a company?

And if you say "It's not really a debt, they would never call it in" then see my paragraph above.

[cojak]

Doesn't quite work like that. The way it has been explained to me is this:

You are effectively employed by the umbrella company. You submit a timesheet to them - who in turn submit an invoice + VAT to the company you are actually doing the work for.

One the invoice is paid - the umbrella company then pay you your salary + a loan which equates to around 90% the invoiced amount minus VAT.

So for example - you worked 40 hours a week for 4 weeks at an agreed rate of £50 per hour. The umbrella would submit an invoice to the value of 40*4*£50 + VAT = £9600 to the company you did the work for.

You would then be paid 90% of the invoice amount minus the VAT - so 40*4*£50/100 * 90% = £7200 and have no income tax, NI, corporation tax or VAT liability as the umbrella has (supposedly) dealt with all of this.

<CUK points and laughs louder...>

[TykeMerc]

Doesn't quite work like that. The way it has been explained to me is this:

You are effectively employed by the umbrella company. You submit a timesheet to them - who in turn submit an invoice + VAT to the company you are actually doing the work for.

One the invoice is paid - the umbrella company then pay you your salary + a loan which equates to around 90% the invoiced amount minus VAT.

So for example - you worked 40 hours a week for 4 weeks at an agreed rate of £50 per hour. The umbrella would submit an invoice to the value of 40*4*£50 + VAT = £9600 to the company you did the work for.

You would then be paid 90% of the invoice amount minus the VAT - so 40*4*£50/100 * 90% = £7200 and have no income tax, NI, corporation tax or VAT liability as the umbrella has (supposedly) dealt with all of this.

If you are really that gullible that you think HMRC will be happy with that arrangement then I've got a cracking deal on a 3/4/5 lane road you can buy for your exclusive use, it runs from London to Leeds and passes loads of useful places. £2k in tenners in a brown paper bag and it's yours, make it £3.5k and I'll let you have the service stations too.

It's people using schemes like these that have spawned countless posts with tales of being molested by HMRC and possible bankruptcies. The schemes came under sustained attack back in 2008 and anyone using one since has at best been totally naive. Considering joining one today is astoundingly stupid, if you do go for it please let us know just how nasty the treatment is from HMRC, we could do with a laugh.

Oh, laughing all the way to the bank is what the scheme providers will do too, it's you with the liability when you're busted by HMRC, not them

[Moony]

If you are really that gullible that you think HMRC will be happy with that arrangement then I've got a cracking deal on a 3/4/5 lane road you can buy for your exclusive use, it runs from London to Leeds and passes loads of useful places. £2k in tenners in a brown paper bag and it's yours, make it £3.5k and I'll let you have the service stations too.

It's people using schemes like these that have spawned countless posts with tales of being molested by HMRC and possible bankruptcies. The schemes came under sustained attack back in 2008 and anyone using one since has at best been totally naive. Considering joining one today is astoundingly stupid, if you do go for it please let us know just how nasty the treatment is from HMRC, we could do with a laugh.

Oh, laughing all the way to the bank is what the scheme providers will do too, it's you with the liability when you're busted by HMRC, not them

Woah there sport, I think you need to take a few steps back. I haven't indicated in any of my posts that I am considering this and have already made my position clear that it sounds dodgy as hell. I wouldn't touch this with a 10m barge pole.

I'm just astounded that people are still signing up to these types of schemes - surely the old saying "if it sounds too good to be true" was coined off this type of thing.

[LisaContractorUmbrella]

Woah there sport, I think you need to take a few steps back. I haven't indicated in any of my posts that I am considering this and have already made my position clear that it sounds dodgy as hell. I wouldn't touch this with a 10m barge pole.

I'm just astounded that people are still signing up to these types of schemes - surely the old saying "if it sounds too good to be true" was coined off this type of thing.

Yep still signing up - 'too good to be true' is just 'too good to pass up' for some people.

[DonkeyRhubarb]

Yep still signing up - 'too good to be true' is just 'too good to pass up' for some people.

How can people not be aware, these days, of how insanely risky these schemes are?

[TykeMerc]

How can people not be aware, these days, of how insanely risky these schemes are?

Simple really, people don't pay attention unless something's been big in the Tabloid press.

To my utter horror I had to explain what IR35 is and what the basic tests are to a very switched on Commercial Manager, he's been a contractor 15 years and had absolutely no idea, he's never had contracts reviewed as that's part of his profession and he's always been "outside IR35". If HMRC do get at him he could very well be deep in the brown stuff.

Ignorance is no defence, but it is very widespread, almost as common as the greed that blinds people into thinking that scheme use is a bright idea.

[LisaContractorUmbrella]

How can people not be aware, these days, of how insanely risky these schemes are?

I think it's like Tykemerc says - people just don't get it or they have no exposure to it; if you asked the population at large what the basic rate of income tax is I bet a fair few wouldn't have a clue. Look at the press reports on 'tax avoidance' - they all state that GiantCorpCo has only paid £x tax on £Y million sales and no-one questions it. I think the politicians, with the help of the media, propagate this sort of ignorance as it enables them to get through legislation which may be 'unconstitutional' (for want of a better word) - APN's for example.

HMRC have access to social media now - they could do a lot to stop avoidance, in this industry at least, by putting out simple, straightforward guidance in Tweets for example - #Contractors 'If It seems to good to be true.....' would be a simple message to get across and could be quite effective in drawing people's attention to all this.

[Fred Bloggs]

I'm afraid it looks like another case of unintended consequences to me. With all the draconian changes coming in over the next few months, the government is handing the scheme promoters the next generation of clients on a plate.

[TykeMerc]

I'm afraid it looks like another case of unintended consequences to me. With all the draconian changes coming in over the next few months, the government is handing the scheme promoters the next generation of clients on a plate.

Quite possibly. The scary bit is that the scheme providers will have no shortage of mugs willing to sign up, that's human nature.

The other element of human nature is that when the mugs realise just how deeply their own actions have dropped them into the excrement they will come screaming for sympathy and complain how unfair it all is. That genie is long out of the bottle they've no sympathy due.