Off Payroll Working in the Public Sector:
One of the consequences of the Off Payroll Working in the Public sector has been that many contractors working in the public sector via a Limited Company have been obliged to move into Umbrella companies. The alternative- to receive payment after various deductions within a so-called Deemed Payment calculation has been rejected by almost all contractors.
Indeed, if you are operating a limited company and receiving a Deemed Payment, it is still not clear how that limited company should complete its year-end tax returns or accounts in order to avoid being “double taxed” on their earnings.
How an Umbrella Company operates:
The supply chain of client, recruitment agency, Umbrella Company and contractor looks like this: follows:
Clauses to look for in an Umbrella arrangement:
|1||Contractors should be employed by the Umbrella Company under an over-arching Contract of Employment|
|2||The contract must contain a guaranteed minimum number of hours (usually 336 hours in a 12 month period).|
|3||The contract must contain a continued mutuality of obligation and a continuity of employment.|
|4||The contract worker should be entitled to SSP|
|5||Travel and Subsistence costs are allowed ONLY if a Supervision, Direction and Control test is applied|
|6||As an employer, the Umbrella company will submit PAYE and National Insurance deductions to HMRC monthly (a worker can check these have been paid by accessing their own personal HMRC account)|
|7||Contractors must be paid at least the National Minimum Wage (NWM) and expenses reimbursed cannot take the rate of pay below this|
How to validate whether an Umbrella company is compliant:
All Umbrella companies claim to be “compliant” but a few rudimentary checks can confirm whether this is the case- checking a VAT number or that you are paying into a UK bank account does not demonstrate that a company is “compliant”. Many Umbrella companies masquerading as “compliant” are actually fronts for offshore loan arrangements where no income tax payments are being made on behalf of the contractor. Recommended checks would be:
- Review a contractor’s payslip and analyse the breakdown of their payments
- Ask a contractor to activate their personal tax account at HMRC and check that monthly payments are being made by the Umbrella company
- Searches of contractor sites may help you identify Umbrella companies which are perhaps best avoided.