HMRC issue guidance on umbrella companies - some interesting reading!

[lucyclarityumbrella]

Nice to see some Clarity at last from HMRC - does this mean regulation is getting closer? Let's hope so, so that we see a level playing field at last and something that finally puts it in writing what should and shouldn't happen!

"The rate paid to the umbrella company by the agency will need to cover the costs of the employer National Insurance contributions. The umbrella company will use this money to pay employer contributions and not deduct the contributions from your gross pay."

"If you leave the umbrella company with annual leave owing to you, the company must pay you for it."

https://www.gov.uk/guidance/working-...brella-company

[ladymuck]

Can we make this a sticky as I can see that link being well used...

[eek]

Nice to see some Clarity at last from HMRC - does this mean regulation is getting closer? Let's hope so, so that we see a level playing field at last and something that finally puts it in writing what should and shouldn't happen!

"The rate paid to the umbrella company by the agency will need to cover the costs of the employer National Insurance contributions. The umbrella company will use this money to pay employer contributions and not deduct the contributions from your gross pay."

"If you leave the umbrella company with annual leave owing to you, the company must pay you for it."

https://www.gov.uk/guidance/working-...brella-company

You know having done that HMRC are going job done.

Which is why I'm back working on.... having finally find an Open Banking solution that works

[lucyclarityumbrella]

The regulation is coming - just more of a case of when...

[gizzmo]

Would "employer contributions" include Employers NI as well as Apprenticeship Levy? Does that mean the contract between Umbrella and contractor will show a lower day rate, and we will no longer see any Employers NI or Apprenticeship Levy on our payslips?

[cwah]

No companies are doing that anyway. It's not illegal either as it's just guidance...

[eek]

Would "employer contributions" include Employers NI as well as Apprenticeship Levy? Does that mean the contract between Umbrella and contractor will show a lower day rate, and we will no longer see any Employers NI or Apprenticeship Levy on our payslips?

It is worth reading HMRC's document closely as it answers a lot of your questions.

https://www.gov.uk/guidance/working-...ompany#payslip says what appears in the payslip (which should be very similar to what you see elsewhere)

It also suggests that you should receive a Reconciliation statement https://www.gov.uk/guidance/working-...ny#recon-state from the umbrella that should explain where the difference between the assignment rate and the amount at the top of your payslip went.

Now one issue here is that you really don't want your umbrella to give you a written fixed contract rate - firstly because the umbrella's fee (being weekly or monthly) means that it's very difficult to keep it consistent, and secondly because it would create a situation where the employer NI side of things had nothing to do with you.

And were the employer NI tax to be coming from the umbrella firm's money they could decide to just pocket it if you used salary sacrifice into your pension (and you don't want that - it's the main reason why we tell you to use an umbrella company rather than agency payroll).

[eek]

No companies are doing that anyway. It's not illegal either as it's just guidance...

It's only fair to say most umbrella firms do offer reconciliation and payslips that allow things to be reconciled. InnoAccounts / Offpayroll found it was only Giant and Orange Genie that generated things they (as accountants) couldn't reconcil.

[cwah]

It's only fair to say most umbrella firms do offer reconciliation and payslips that allow things to be reconciled. InnoAccounts / Offpayroll found it was only Giant and Orange Genie that generated things they (as accountants) couldn't reconcil.

I'm talking about this:
"The rate paid to the umbrella company by the agency will need to cover the costs of the employer National Insurance contributions. The umbrella company will use this money to pay employer contributions and not deduct the contributions from your gross pay."

The quoted rate will still be without the NIC. They'll say something like £500/day Inside IR35 and then the umbrella will deduct employer NIC as normal.

I can't see any change.

[eek]

I'm talking about this:
"The rate paid to the umbrella company by the agency will need to cover the costs of the employer National Insurance contributions. The umbrella company will use this money to pay employer contributions and not deduct the contributions from your gross pay."

The quoted rate will still be without the NIC. They'll say something like £500/day Inside IR35 and then the umbrella will deduct employer NIC as normal.

I can't see any change.

Provided it is clear that that it is the "assignment" rate and it's reflected within the Key Information Document there is nothing you can do about it - and I personally don't see the problem.

The real issue here is that the agents use "Umbrella / Inside IR35 Rates" without explaining what they are. If they used a consistent phrase such as Assignment or Budget rate life would be so much easier as it would be a one off training exercise - this Assignment rate is the rate we pay the Umbrella firm from which they need to deduct their employment costs. Prior to the contract starting the umbrella firm will provide a Key Information Document that will outline where this money goes and what the actual PAYE contract rate will be.