Contractor Umbrella Company

[John Diamond]

 

From the descriptions of the Umbrella companies, it sounds like they are a glorified labour agency.

 

A common and not unfounded opinion. However, the worker while employed by the umbrella still has to find their own work in the majority of cases. There is usual no provision from the umbrella for finding contracts for the worker.

[david.elsbury]

So it sounds like you are agreeing there really are no benefits to contractors/freelancers in this industry to throw away a reasonable portion of their money to somebody else, John...

[dbuckley]

I think thats a little harsh, David; I believe their actual purpose is as a tax optimisation mechanism, and providing some certainty around the employment status of the worker. "Freelance" in the UK is a difficult term, and has tax difficulties associated with it.

[John Diamond]

It's good to hear a lively discussion on an important issue.

 

There are benefits for a company in not having employees but contractors only employed through an umbrella. As an MD of a crewing company, my interest comes from hearing how other businesses in the industry operate. My company have always paid our staff through PAYE with exceptions for properly documented sub-contractors. I am trying to establish if there are any benefits to being employed by an umbrella for any group of 'freelancers' where our current operations may discourage them from working for us.

 

We had random inspection from HMRC for the first time since I have been in business just last year. Specifically looking at our current payroll and expenses operations. We passed with flying colours but we discovered that they don't allow the hire of a black tie dinner suit as a legitimate business expense - even though we explained that it was required by an employee to carry out an operating job at a black tie dinner. I am not about to upset the HMRC by radically altering our payroll practices.

 

If the worker decides that working via an umbrella company is the best option for them and there is no additional cost or liability for the employer then I cannot see why it shouldn't be an option available. The advice given to me is that it is very risky for an employer or client demand a worker be employed via an umbrella, so providing options are a must.

 

On insurance: the employers insurance that the umbrella provides will not cover workers in our industry. Freelancers will need to arrange their own suitable cover. However, the cost of the insurance is a business expense which can be claimed for through the umbrella, like other legitimate business costs the freelancer incurs, by reducing the portion of the freelancers income that is taxed.

 

A HMRC investigation into our industry practices is an ever looming prospect. Having both been employed and the employer I am aware that there are a large number of employers and workers who would fall foul of the tax inspectors which could then trigger further investigations into other employers and workers. Is this a common concern?

 

I think thats a little harsh, David; I believe their actual purpose is as a tax optimisation mechanism, and providing some certainty around the employment status of the worker. "Freelance" in the UK is a difficult term, and has tax difficulties associated with it.

 

I concur.

 

This subject has only pricked my interest because my understanding is that while the umbrella is a business and needs to turn a profit, their mechanisms provide for the worker charging no different a rate to the end client while realising a net cash benefit due to dispensations allowed by HMRC and allowable expenses. There is also the benefit of having to do minimal admin which would be attractive to freelancers who only do their accounting the day before self assessment is due. No more big one off tax bills or payments on account would be appealing to anyone.

 

It is my understanding that the taxman has no objection to properly managed contractor umbrellas. They were identified as a good method of obtaining revenue from freelance contractors when the regulations changed.

[kerry davies]

A HMRC investigation into our industry practices is an ever looming prospect.

 

They have been skirting round the edges for a few years now and recent "internship" publicity and tribunal cases in media companies makes it ever more likely. John is aware of the WTD and self-employment storm that the transport side of our business has gone through and I have been banging on about "do the right thing" for years.

 

My personal view of umbrella companies is that they can be a good thing but the circumstances must suit the individual. One-man-bands, as I was, need to take care of business for their own sakes but with Diamonds I can see reasons for them and similar companies wishing to be absolutely certain that self-employment problems do not rebound on them. This would make me more enthusiastic as an employer than as an employee/contractor to make use of an umbrella. If I were a local crew worker I might go for it.

 

I make no apology for repeating that the "freelance" tag needs to be got rid of. I am a self-employed contractor on a sole trader basis and the words may come to be a lot more important for the future generations. As an industry we do need to discuss these things and whether they are right or wrong for the individual, I would bet that many of the young 'uns had no knowledge until John posted.

[chisnallsam]

So, I am rather new to contracting myself. I used an umbrella company (.co.uk I think) tofigure out how I wanted to get paid. The passed me on to a company called contractor unlimited who were really helpful.

 

Sam