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Umbrella payroll companies

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Nimrod103
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Umbrella payroll companies

#86810

Postby Nimrod103 » October 9th, 2017, 8:55 am

I'm not sure if this is the best place to ask this question, but I will go ahead anyway.

A young relative wants to do supply teaching, and has been told to sign up with one out of a list of 5 umbrella payroll companies. She has asked my advice, but I don't know anything about the subject. AIUI this is the new and increasing way the 'self employed' have to work. It absolves the supply agency of any responsibility for the teachers taxes or NI or pensions or maternity pay, and they have to pay employers NI as well, but cannot claim any expenses like travel etc. Have I got that right? Are there any pitfalls, and are any of these umbrella companies dodgy?

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Re: Umbrella payroll companies

#86827

Postby Alaric » October 9th, 2017, 10:01 am

Nimrod103 wrote: AIUI this is the new and increasing way the 'self employed' have to work. It absolves the supply agency of any responsibility for the teachers taxes or NI or pensions or maternity pay, and they have to pay employers NI as well, but cannot claim any expenses like travel etc.


Is this connected with a public sector crackdown on what they regard as disguised employment? In other words someone notionally self-employed or employed by their own service company who in practice only has one employer? The dodge was that the "salary" was restricted to the minimum necessary to take advantage of the personal allowance and also obtain NI benefits with the balance taken as dividends. This could save a bit of Tax and NI even after Corporation Tax was paid by the service company.

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Re: Umbrella payroll companies

#86830

Postby FredBloggs » October 9th, 2017, 10:14 am

Be very careful here. Since the hard crack down on tax avoidance schemes the last couple of years by HMRC, many of the tax avoidance scheme providers have started calling themselves umbrella companies. While there is nothing at all wrong with using a bona fide, real umbrella company as your employer, many of the schemes masquerading as brollies tend to hide the true nature of what they are doing, luring unsuspecting users into using them by offering higher than normal take home pay that a bona fide brolly would pay as take home. Usually, the scheme involves loans or other contrived arrangements and it can be very difficult for the brolly user, once engaged, to actually determine exactly what is going on with their pay. These contrived arrangements are very opaque indeed. Providing the person uses a true, bona fide brolly and has their income paid subject to full PAYE, there is not much risk, other than the brolly going bust (and they do). An alternative approach is be on the engaging employment agencies payroll for the duration of the assignment. HTH.

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Re: Umbrella payroll companies

#86831

Postby didds » October 9th, 2017, 10:16 am

Alaric wrote:
Nimrod103 wrote: AIUI this is the new and increasing way the 'self employed' have to work. It absolves the supply agency of any responsibility for the teachers taxes or NI or pensions or maternity pay, and they have to pay employers NI as well, but cannot claim any expenses like travel etc.


Is this connected with a public sector crackdown on what they regard as disguised employment? In other words someone notionally self-employed or employed by their own service company who in practice only has one employer? The dodge was that the "salary" was restricted to the minimum necessary to take advantage of the personal allowance and also obtain NI benefits with the balance taken as dividends. This could save a bit of Tax and NI even after Corporation Tax was paid by the service company.




And as was advised on a Governmental site even - until Gordon Brown invented IR35 when said advice disappeared overnight.

Its a bit of a minefield these days.


didds

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Re: Umbrella payroll companies

#86832

Postby didds » October 9th, 2017, 10:18 am

FredBloggs wrote:. An alternative approach is be on the engaging employment agencies payroll for the duration of the assignment. HTH.



I suspect it would have been the engaging employment agency that suggested the umbrella route as it relieves THEM of the PAYE duties...

didds

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Re: Umbrella payroll companies

#86834

Postby FredBloggs » October 9th, 2017, 10:27 am

didds wrote:
FredBloggs wrote:. An alternative approach is be on the engaging employment agencies payroll for the duration of the assignment. HTH.



I suspect it would have been the engaging employment agency that suggested the umbrella route as it relieves THEM of the PAYE duties...

didds

Indeed.

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Re: Umbrella payroll companies

#86837

Postby colin » October 9th, 2017, 10:36 am

My experience with working under 'umbrella' companies was that it was very very difficult to work out whether or not I was getting the same deal as someone employed under PAYE, different schemes were used and they all manipulated my wage slips in different ways, some to the extent that i lost National Insurance Contributions. It proved impossible to get any help from HMRC , they told me it was a national Insurance issue, National Insurance told me it was a tax issue. In theory I could have demanded payment under normal PAYE conditions the reality was as an agency worker that I would not have recieved any work, fortunately I found an agency run decently which chose not to indulge in the whole giggery pokery. That was several years ago and I know there must be several thousand workers missing NI contributions due to the way Umbrella companies operated then, whether anything has changed I have no idea. For peace of mind I would urge your daughter to look for an agency that does not use such schemes.
Last edited by colin on October 9th, 2017, 10:39 am, edited 1 time in total.

Nimrod103
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Re: Umbrella payroll companies

#86838

Postby Nimrod103 » October 9th, 2017, 10:39 am

Thanks for the responses. The documentation she has shown me looks above board, but I have a further detailed question. The agency is insisting on use of an umbrella, but they have given her two options (I won't mention any of the company/agency names), and this is specifically what she has asked about.
1) One option is what appears to be straightforward "Umbrella company registration". This looks like standard deductions, and you submit your own tax returns.
2) "Umbrella company DSC" - meaning direction, supervision and control limited option. This looks suspiciously like a reduced salary for NI purposes, but made up somehow else - the paperwork is not specific.

Would I be right in thinking that supply teachers employed by umbrellas cannot reclaim expenses like travel etc?

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Re: Umbrella payroll companies

#86841

Postby Nimrod103 » October 9th, 2017, 10:40 am

Nimrod103 wrote:Thanks for the responses. The documentation she has shown me looks above board, but I have a further detailed question. The agency is insisting on use of an umbrella, but they have given her two options (I won't mention any of the company/agency names), and this is specifically what she has asked about.
1) One option is what appears to be straightforward "Umbrella company registration". This looks like standard deductions, and you submit your own tax returns.
2) "Umbrella company DSC" - meaning direction, supervision and control limited option. This looks suspiciously like a reduced salary for NI purposes, but made up somehow else - the paperwork is not specific.

Would I be right in thinking that supply teachers employed by umbrellas cannot reclaim expenses like travel etc?


PS its not my daughter, its a more distant relation.

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Re: Umbrella payroll companies

#86843

Postby didds » October 9th, 2017, 10:47 am

Just a thought - are the teaching unions able to provide any guidance?

WRT travel expenses - Its been 7 years since I contracted in IT, and I ran my own lit company then anyway, but my understanding back then based on fellow IT contractors that did use umbrellas were expensing for travel. However, times may have moved on of course. My understanding from what back then was under IR35 a flat 5% expenses could be claimed - but I hasten to underline that this is very wooly recollections based on a position a decade ago etc.

I sypathise with your relative - it seems a total minefield when all she wants to do is get on with her life whilst being passed around by one orgainsation to another who are all trying to avoid handling something as simple as "payroll"

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Re: Umbrella payroll companies

#86845

Postby FredBloggs » October 9th, 2017, 10:55 am

Nimrod103 wrote:Would I be right in thinking that supply teachers employed by umbrellas cannot reclaim expenses like travel etc?

Correct. An assignment under a brolly is classed as regular employment, just the same as if you worked for any other employer. So normal home>work travel is not claimable. Under a brolly your tax deductions will be -

EENIC
ERNIC
Income tax
0.5% Apprentice levy (effectively another 0.5% NIC)

HTH.

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Re: Umbrella payroll companies

#86861

Postby Slarti » October 9th, 2017, 11:48 am

FredBloggs wrote:
Nimrod103 wrote:Would I be right in thinking that supply teachers employed by umbrellas cannot reclaim expenses like travel etc?

Correct. An assignment under a brolly is classed as regular employment, just the same as if you worked for any other employer. So normal home>work travel is not claimable. Under a brolly your tax deductions will be -

EENIC
ERNIC
Income tax
0.5% Apprentice levy (effectively another 0.5% NIC)

HTH.


ERNIC is not deducted from the employee as it isEmployer's NIC.
It normally doesn't even show on the payslip.

Slarti

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Re: Umbrella payroll companies

#86871

Postby Nimrod103 » October 9th, 2017, 12:19 pm

Slarti wrote:
FredBloggs wrote:
Nimrod103 wrote:Would I be right in thinking that supply teachers employed by umbrellas cannot reclaim expenses like travel etc?

Correct. An assignment under a brolly is classed as regular employment, just the same as if you worked for any other employer. So normal home>work travel is not claimable. Under a brolly your tax deductions will be -

EENIC
ERNIC
Income tax
0.5% Apprentice levy (effectively another 0.5% NIC)

HTH.


ERNIC is not deducted from the employee as it isEmployer's NIC.
It normally doesn't even show on the payslip.

Slarti


Logical as it may seem, that is not how it is set out in the blurb she has given me.
Because the umbrella employee is classed as self employed, she/he is responsible for their own and their employers NI (total of 24.8%). Yet because she is also classed as an employee, she cannot claim expenses which e.g. I can through my personal services company, such as travel. Not sure if she can claim union dues.

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Re: Umbrella payroll companies

#86875

Postby Alaric » October 9th, 2017, 12:25 pm

Nimrod103 wrote:
Because the umbrella employee is classed as self employed, she/he is responsible for their own and their employers NI (total of 24.8%).


You might hope that the school contracting her services will pass on their NI and other employer savings to the umbrella company, so it's just a pass through for legal and presentational reasons.

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Re: Umbrella payroll companies

#86881

Postby Watis » October 9th, 2017, 12:40 pm

Nimrod103 wrote:
Slarti wrote:
FredBloggs wrote:Correct. An assignment under a brolly is classed as regular employment, just the same as if you worked for any other employer. So normal home>work travel is not claimable. Under a brolly your tax deductions will be -

EENIC
ERNIC
Income tax
0.5% Apprentice levy (effectively another 0.5% NIC)

HTH.


ERNIC is not deducted from the employee as it isEmployer's NIC.
It normally doesn't even show on the payslip.

Slarti


Logical as it may seem, that is not how it is set out in the blurb she has given me.
Because the umbrella employee is classed as self employed, she/he is responsible for their own and their employers NI (total of 24.8%). Yet because she is also classed as an employee, she cannot claim expenses which e.g. I can through my personal services company, such as travel. Not sure if she can claim union dues.



I can provide a link which may prove helpful: http://www.contractorweekly.com/

This site provides lots of advice to contractors regarding contract working generally and the IR35 rules specifically.

No connection; hope it helps.

Watis

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Re: Umbrella payroll companies

#86894

Postby MyNameIsUrl » October 9th, 2017, 1:21 pm

Nimrod103 wrote:I'm not sure if this is the best place to ask this question, but I will go ahead anyway.

A young relative wants to do supply teaching, and has been told to sign up with one out of a list of 5 umbrella payroll companies. She has asked my advice, but I don't know anything about the subject. AIUI this is the new and increasing way the 'self employed' have to work. It absolves the supply agency of any responsibility for the teachers taxes or NI or pensions or maternity pay, and they have to pay employers NI as well, but cannot claim any expenses like travel etc. Have I got that right? Are there any pitfalls, and are any of these umbrella companies dodgy?


I think some umbrella companies are a little dodgy, but you don't name any, nor will I name any which I think are dodgy. What I think would be more helpful to you would be to say that I used Parasol recently and they are not dodgy and I would recommend them.

It seems to me that all Umbrellas should give the individual exactly the same cash in hand (except for their own fees - Parasol were about £125 a month) because they should all be applying the tax and ni calcs in exactly the same way. As a result they can't really compete with each other without getting a bit dodgy and promising more cash in hand than their competitors. Even Parasol has become slightly infected by this pressure if you look at the marketing pages on their website.

It's important to realise that your relative would not be self-employed, but would be an employee, with all that entails. Subject to NMW, holiday pay, and auto-enrollment in a pension. Don't think the umbrellas don't do anything for their fees - they have similar overheads to any organisation with many employees. The agencies are the ones who seem to me to be the ones who add little value for a lot of cost.

I expect she would be quoted a daily rate by the school, then at the month end the daily rate times the number of days would be transferred to the Umbrella. They deduct 'employment costs' first - these are their fees plus employER ni. To emphasise, employer ni will come out of the daily rate she is quoted. What's left is gross pay, subject to employEE ni, tax etc.

I checked my calcs from Parasol and they were spot on. It's a little tricky as there is circularity in the calcs - until you know the gross pay you can't calulate the employer ni, but with a bit of excel it all works out. Holiday pay also has to be taken into account.

Because she would have to pay employer ni, the umbrella fees, and take account of holidays, the daily rate has to be substantially more that what a normally-employed teacher would think of as their own rate of pay for a day. So she needs to do some sums before she decides to take it on.

(A final minor issue: she may be able to claim travel expenses for commuting, but unless the school has said they will pay these over and above the daily rate, the expenses will come out of the daily rate, leaving less gross pay. So all she would gain is the tax on that amount, probably only a very small proportion of the total. The umbrella would administer all that.)

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Re: Umbrella payroll companies

#86907

Postby Nimrod103 » October 9th, 2017, 1:59 pm

MyNameIsUrl wrote:
Nimrod103 wrote:I'm not sure if this is the best place to ask this question, but I will go ahead anyway.

A young relative wants to do supply teaching, and has been told to sign up with one out of a list of 5 umbrella payroll companies. She has asked my advice, but I don't know anything about the subject. AIUI this is the new and increasing way the 'self employed' have to work. It absolves the supply agency of any responsibility for the teachers taxes or NI or pensions or maternity pay, and they have to pay employers NI as well, but cannot claim any expenses like travel etc. Have I got that right? Are there any pitfalls, and are any of these umbrella companies dodgy?


I think some umbrella companies are a little dodgy, but you don't name any, nor will I name any which I think are dodgy. What I think would be more helpful to you would be to say that I used Parasol recently and they are not dodgy and I would recommend them.

It seems to me that all Umbrellas should give the individual exactly the same cash in hand (except for their own fees - Parasol were about £125 a month) because they should all be applying the tax and ni calcs in exactly the same way. As a result they can't really compete with each other without getting a bit dodgy and promising more cash in hand than their competitors. Even Parasol has become slightly infected by this pressure if you look at the marketing pages on their website.

It's important to realise that your relative would not be self-employed, but would be an employee, with all that entails. Subject to NMW, holiday pay, and auto-enrollment in a pension. Don't think the umbrellas don't do anything for their fees - they have similar overheads to any organisation with many employees. The agencies are the ones who seem to me to be the ones who add little value for a lot of cost.

I expect she would be quoted a daily rate by the school, then at the month end the daily rate times the number of days would be transferred to the Umbrella. They deduct 'employment costs' first - these are their fees plus employER ni. To emphasise, employer ni will come out of the daily rate she is quoted. What's left is gross pay, subject to employEE ni, tax etc.

I checked my calcs from Parasol and they were spot on. It's a little tricky as there is circularity in the calcs - until you know the gross pay you can't calulate the employer ni, but with a bit of excel it all works out. Holiday pay also has to be taken into account.

Because she would have to pay employer ni, the umbrella fees, and take account of holidays, the daily rate has to be substantially more that what a normally-employed teacher would think of as their own rate of pay for a day. So she needs to do some sums before she decides to take it on.

(A final minor issue: she may be able to claim travel expenses for commuting, but unless the school has said they will pay these over and above the daily rate, the expenses will come out of the daily rate, leaving less gross pay. So all she would gain is the tax on that amount, probably only a very small proportion of the total. The umbrella would administer all that.)


Thanks for this. All quite an eye opener for me, and my first insight into the gig economy.
The umbrella payroll companies she has to choose from are:

racs
nasa
jsa
ePayMe
Generate

I have no idea whether any of these is better than another, but there seem to be an awful lot of them out there - reminds of double glazing and solar panel installers, and we know how that ended up.

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Re: Umbrella payroll companies

#86922

Postby didds » October 9th, 2017, 2:31 pm

and those are the only ones the agency will deal with? as opposed to picking (say) parasol herself (only an example already mentioned)

didds

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Re: Umbrella payroll companies

#86932

Postby FredBloggs » October 9th, 2017, 3:02 pm

Slarti wrote:
FredBloggs wrote:
Nimrod103 wrote:Would I be right in thinking that supply teachers employed by umbrellas cannot reclaim expenses like travel etc?

Correct. An assignment under a brolly is classed as regular employment, just the same as if you worked for any other employer. So normal home>work travel is not claimable. Under a brolly your tax deductions will be -

EENIC
ERNIC
Income tax
0.5% Apprentice levy (effectively another 0.5% NIC)

HTH.


ERNIC is not deducted from the employee as it isEmployer's NIC.
It normally doesn't even show on the payslip.

Slarti

It is general convention that an agency role is quoted gross. The temporary employee pays all those deductions from the hourly rate. The "employer" be it either the agency or the brolly deduct all those taxes before paying the worker. To pretend that the agency or the brolly somehow pays ERNIC in a way other than from the workers hourly pay is quite misleading. Where does the brolly? Get the ERNIC money from? There us no magic money tree.

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Re: Umbrella payroll companies

#86935

Postby FredBloggs » October 9th, 2017, 3:07 pm

Nimrod103 wrote:
Slarti wrote:
FredBloggs wrote:Correct. An assignment under a brolly is classed as regular employment, just the same as if you worked for any other employer. So normal home>work travel is not claimable. Under a brolly your tax deductions will be -

EENIC
ERNIC
Income tax
0.5% Apprentice levy (effectively another 0.5% NIC)

HTH.


ERNIC is not deducted from the employee as it isEmployer's NIC.
It normally doesn't even show on the payslip.

Slarti


Logical as it may seem, that is not how it is set out in the blurb she has given me.
Because the umbrella employee is classed as self employed, she/he is responsible for their own and their employers NI (total of 24.8%). Yet because she is also classed as an employee, she cannot claim expenses which e.g. I can through my personal services company, such as travel. Not sure if she can claim union dues.

Welcome to the mess that is the UK taxation system of temporary workers. No, you cannot claim union dues as a deduction. The only avenue open to save tax is pension contributions. This should be done by salary sacrifice but a good many brollies won't do this. I recomend you google a website called " all umbrella companies are equal". There is lots of good info there. HTH.


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