Dispelling the Top Three Umbrella Myths

Dispelling the Top Three Umbrella Myths

Dispelling the Top Three Umbrella Myths

My umbrella company can pay more than yours!

All COMPLIANT umbrella companies will be working to the same set of HMRC guidelines which control the level and type of expenses that can be paid.

The only pay differentiator between COMPLIANT umbrella companies will be their fee or margin. The fee or margin covers all of the costs of running the umbrella company together with the shareholders profits.  If it’s too high your contractor will be lining the pockets of their umbrella companies shareholders.

Conversely, too low you have to ask the question – how can they provide the levels of service you require or operate to the very high levels of compliance checks required by HMRC to run a compliant umbrella company with so little income to cover their overheads?

Cutting corners on compliance or service for an umbrella company is a recipe for disaster for you, the contractor and possibly your client.

Focused operate on a margin of £24.50 and provide totally FREE life cover and eye tests to all of your contractors .  Certainly not the cheapest in the market  – but we can tell you that every compliance check required by HMRC is in place.  Definitely not the most expensive in the market either with many other Umbrellas operating at £30 plus or operating extra hidden charges.

So the main differentiator between COMPLIANT umbrellas should come down to service.  Why not try Focused with your next contractor.  We believe that you will find £24.50 very good value.

I take home 80% of my pay with my current umbrella!

An umbrella company employs your contractor and operate PAYE on all taxable pay after applying allowable business expenses.

The umbrella company must pay a minimum of national minimum wage plus holiday pay for each hour worked before they can apply any expenses.

It does not take a genius to do the math to work out that it is simply not possible for an umbrella company to deliver 80%.  So if your umbrella is delivering returns of 80% or above you need to ask yourself – are they REALLY an umbrella company or are they just using the label?  Only fully COMPLIANT umbrella companies offer agencies and their client’s protection from third party debt transfer.  Can you afford to take that risk or explain to your client their exposure to that risk?

HMRC are placing great emphasis on non-compliant solutions.  Only as recently as May,  Legitas – a company operating a pay-day by pay-day model collapsed with thousands of contractors on their books and last week EmployE, which was owned by the same Director, went into liquidation following a claim by HMRC for over £58 million of unpaid tax and penalties.

If you would like further information on this point or any others relating to umbrella compliance please contact Focused who will be happy to arrange a discussion with our Compliance Experts.

The Rate you pay the umbrella is your contractor’s pay rate?

When a contractor uses an umbrella company they become an employee of the umbrella company.

The umbrella company will issue the contractor with a contract of employment and this will dictate their pay rate. The most common model will offer the contractor a pay rate of national minimum wage plus holiday pay.  In addition to this they will be paid a variable bonus and all allowable business expenses.

The business expenses are paid tax and NI free.  This model allows your contractor to maximise their take home pay through the use of allowable business expenses.

You will not have a contract of employment with the contractor, instead you will have a contract between your agency and the umbrella company. The rate you pay the umbrella  forms part of this contract.  As you no longer have an employment relationship with the contractor all obligations pass to the umbrella company including all statutory payments and compliance with employment legislation.

You should never describe the payment you make to the umbrella as the pay rate.

If you would like further information on this point or any others relating to umbrella compliance please contact Focused who will be happy to arrange a discussion with our Compliance Experts.

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