Beware of Umbrella Payroll Companies

[SXGuy]

Just thought id give you all a heads up about something i discovered recently.

There seems to be payroll umbrella companies springing up which i feel could be a con when you way up the pros

A friend of mine happend to comment on how shes charged £27 a week on her payslip for admin fees, when i questioned what this was she said she didnt know.

She told me who her payroll company were and i looked them up.

Turns out this company "employs" people, (not the company she is working for) then allows them to claim tax relief using expenses not usually claimed by standard employees.

The way this is designed was originally set up for temps or contractors who may fall in to IR35, for but the average person working in a job, this is outrageous.

According to HMRC this is legal, but i fail to see how charging someone £27 per week is fair, hell My company charge £3 per person per week!! which is on a sliding scale depending on staff levels.

I advised her to work out how much tax relief she receives and compare it to what she pays out in admin fees, because im convince she pays more to receive a lot less benifit!

[Pixie]

Re: Beware of Umbrella Payroll Companies

I've worked through a couple of agencies which insist that you are paid through an umbrella company. You're better off if you can get a full week's work but generally, you're worse off. However, with these two agencies there was no other option

Luckily, the one I'm working through at the moment doesn't use an umbrella company.

[SXGuy]

Re: Beware of Umbrella Payroll Companies

Its crazy, i see the advantage for people who would otherwise be for example a sole director of a ltd company with 1 contract.

But a team of staff, doesnt apply the same criteria in my opinion.

In all honesty all it does is remove the burden of costs from the real employer and passes it over to the workers which i think is wrong and shouldnt be allowed.

If you are a temp working 2 days a week thats nearly half your salary on admin fees.

[Pixie]

Re: Beware of Umbrella Payroll Companies

In all honesty all it does is remove the burden of costs from the real employer and passes it over to the workers which i think is wrong and shouldnt be allowed.

Exactly! It benefits the employer not the employee no matter what they try to tell you.

If you are a temp working 2 days a week thats nearly half your salary on admin fees.

Tell me about it...

[SA Gold]

Re: Beware of Umbrella Payroll Companies

What a rip-off! I know a few people who have used such things and they claim that it "saves so much hassle". Personally, i thought that one of the ideas of going limited is so you can control what's going on

[finechina]

Re: Beware of Umbrella Payroll Companies

Its crazy, i see the advantage for people who would otherwise be for example a sole director of a ltd company with 1 contract.

But a team of staff, doesnt apply the same criteria in my opinion.

In all honesty all it does is remove the burden of costs from the real employer and passes it over to the workers which i think is wrong and shouldnt be allowed.

If you are a temp working 2 days a week thats nearly half your salary on admin fees.

Found this forum when I was googling about umbrella companies. I used to work for one a long time ago (2004), while I was working through a temp agency, I was saving around £50/week on taxes so not bad because they didn't charge that much and you could deduct expenses, etc.

Later on I set up a limited company and have on occasion used it to invoice, now i'm using it more. Then I heard it's better to use an umbrella company. I always thought you didn't need one if you were a director of your own company. I want to know that the advantages are of using one in this context.

A friend of mine who is not a director has had mixed experiences with such companies, some of them didn't pay on time and also some deduct PAYE taxes (as mine always did) but some didn't and he had to do a tax return for that reason.

If I used an umbrella company as a company director, would I still need to do a tax return? Or how does it work?

Thanks

[SXGuy]

Re: Beware of Umbrella Payroll Companies

A sole director of a ltd company which for example invoices for services preformed, if only providing services to one contract / company through an agency, then they fall under HMRC legislation called IR35.

IR35 in its simplest terms, treats ALL turnover less expenses as income to the director.

Because of this, a proportion of the income is called a Deemed Payment, and further tax liabilities arise.

In comparison to a normal ltd company with a director who proforms services for more than one contract / company, he can take a low wage on PAYE, and the rest in dividends.

The benifit of this is, dividends have a 10% tax credit towards the first 35,000 thus resulting in a massive reduction in tax and ni.

So umbrella payroll companies avoid the need for ltd company directors under IR35 and reduces their liability.

Whether it would benifit you depends on a number of factors.

Do you fall under IR35, if the answer is no, then i dont believe umbrella companies would be of benifit.

[finechina]

Re: Beware of Umbrella Payroll Companies

A sole director of a ltd company which for example invoices for services preformed, if only providing services to one contract / company through an agency, then they fall under HMRC legislation called IR35.

IR35 in its simplest terms, treats ALL turnover less expenses as income to the director.

Because of this, a proportion of the income is called a Deemed Payment, and further tax liabilities arise.

In comparison to a normal ltd company with a director who proforms services for more than one contract / company, he can take a low wage on PAYE, and the rest in dividends.

The benifit of this is, dividends have a 10% tax credit towards the first 35,000 thus resulting in a massive reduction in tax and ni.

So umbrella payroll companies avoid the need for ltd company directors under IR35 and reduces their liability.

Whether it would benifit you depends on a number of factors.

Do you fall under IR35, if the answer is no, then i dont believe umbrella companies would be of benifit.

I think I probably do, although my boss said IR35 is of more concern to them rather than me and their accountant said it shouldn't be a problem if certain wording was added to the invoices.

So you are saying I could use an umbrella company instead and work as an employee of that company (as I used to do when I was a temp through an agency nine years ago) rather than invoice using my own company and that would get around potential IR35 issues?

[SXGuy]

Re: Beware of Umbrella Payroll Companies

I would suggest speaking to an IR35 specialist who can give you better advice than I can, as i try to avoid clients in that situation as it can get tricky.
Plus theres like hundreds of questions and senario's to determine whether IR35 applies or not.

Personally i wouldnt rely on wording on an invoice to get you out of anything, one of the main things HMRC look for is if you only do work for one company, then you would otherwise be employed by that company had you not been a director of your own.
You would need proof you have invoiced others in the same year.
Many other factors to consider, but that would be a strong argument on their part.

But from the limited knowledge i do have, if you are employed by 1 company, who contracts you to an agency, who in turn sub contracts you on a job (so your not actually invoicing) then you get out of IR35 that way.

[mgfboy]

Re: Beware of Umbrella Payroll Companies

A lot of IR35 issues revolves around the badges of employement and the rights of substitution.

This might help a bit.

http://www.accountancy-edge.co.uk/ta...of-employment/