There are a large number of misconceptions surrounding the role and legal requirements of an umbrella company.

To assist we have compiled a list of the most common ones.

Some Umbrella companies have been approved by HMRC

False - The HMRC does not approve or give preference to individual Umbrella companies. Certain aspects of the business’ operations, such as its payroll software or its expense dispensation may have received HMRC approval, however, any claims that the business entity itself has been approved are untrue.

Workers under an Umbrella company are not employed

False - All workers who operate under an Umbrella company are employed by the Umbrella company. The Umbrella company is legally obligated to provide each employee with a contract of employment and is also responsible for the facilitation of any and all rights in which an employee is entitled to.

If a worker exceeds 24 months at the same work location they can switch Umbrella company to continue claiming site based expenses

No, this is not the case. The 24 months rule applies to the site on which you are working as so long as this stays constant it will not matter who your employer is - if your time on site exceeds 24 months (or it is expected to exceed 24 months) it is viewed as a permanent site and you are no longer able to claim travel and subsistence expenses.

Umbrella workers are immune from HMRC investigations as the liability falls upon the Umbrella company

False - The HMRC can opt to investigate any individual’s tax affairs as and when they see fit. If it has transpired that business expenditure has been claimed fraudulently then the Umbrella worker could become liable for any tax and penalties due.

The IR35 legislation has a direct impact on Umbrella workers

False - The IR35 legislation only impacts self-employed individuals, including those operating through their own personal services limited company. Employees of Umbrella companies are paid under the PAYE system which therefore put them outside of the scope of IR35. Umbrella companies which claim to be IR35 compliant cannot claim this justly as any Umbrella company operating a PAYE scheme is by default outside the scope of IR35.

Offshore schemes and loan schemes are a viable way of reducing tax

The short answer to this is no, participating in offshore Umbrella companies and Employee benefit trusts are not viable (or legal) methods of payment. These particular avenues have been heavily scrutinized in the media over the past few years and HMRC has revised already existing legislation to clamp down on companies operating in such a way. When it comes to companies advertising retention levels of above 90% the general consensus is if it seems too good to be true is more often then not is.  

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