I keep reading on LinkedIn about the introduction of “Joint Several Liability” (JSL) to umbrella company supply chains. The essential purpose of this appears to be recovery of tax from agent / client where umbrella is insolvent.
It seems that the implementation leaves an agent or client who’s already paid an umbrella company in full, liable for taxes in the event of the umbrella company not paying the tax.
Absent good mitigation options, the obvious risk avoidance approach will be for the client / agent to pay the umbrella net of tax. But there seems to be little discussion of any impact of this on the worker.
Currently, an umbrella worker with £10k pcm invoiced and 35% salsac will see a gross salary of £5.4k and a pension contribution of £3.5k. Overall NI + AL is £1,342.
Suppose the agent decides to deduct the tax to avoid the risk. Presumably agents wouldn’t want to be running pension schemes or salsac arrangements. Let’s say the agent pays the umbrella company £100 for Company Margin and 3% (£300) for the worker’s pension. That leaves £9,600 available to cover worker costs. The agent pays £2,335 overall in NI + AL on this and pays the balance to the umbrella to pass to the worker. The worker then needs to make pension payments from net income, to be grossed up by tax reclaim.
Of course, there are no details on how this might really work in practice, but it’s apparent that supply chain risk mitigation may result in more tax take and is detrimental to the worker (by £1k in the above example). Any changes to pension tax relief would further impact the worker.
I wonder how this will be made to work in practice so as not to impact the worker. Those already ‘employed’ by umbrella companies may not welcome such a change but may have no option but to accept it in the short term.
It seems that the implementation leaves an agent or client who’s already paid an umbrella company in full, liable for taxes in the event of the umbrella company not paying the tax.
Absent good mitigation options, the obvious risk avoidance approach will be for the client / agent to pay the umbrella net of tax. But there seems to be little discussion of any impact of this on the worker.
Currently, an umbrella worker with £10k pcm invoiced and 35% salsac will see a gross salary of £5.4k and a pension contribution of £3.5k. Overall NI + AL is £1,342.
Suppose the agent decides to deduct the tax to avoid the risk. Presumably agents wouldn’t want to be running pension schemes or salsac arrangements. Let’s say the agent pays the umbrella company £100 for Company Margin and 3% (£300) for the worker’s pension. That leaves £9,600 available to cover worker costs. The agent pays £2,335 overall in NI + AL on this and pays the balance to the umbrella to pass to the worker. The worker then needs to make pension payments from net income, to be grossed up by tax reclaim.
Of course, there are no details on how this might really work in practice, but it’s apparent that supply chain risk mitigation may result in more tax take and is detrimental to the worker (by £1k in the above example). Any changes to pension tax relief would further impact the worker.
I wonder how this will be made to work in practice so as not to impact the worker. Those already ‘employed’ by umbrella companies may not welcome such a change but may have no option but to accept it in the short term.
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