As a contractor or freelancer you will have no doubt heard stories of umbrella companies who can ‘help you increase’ your take home income. As with many things that ‘seem to good to be true’, many of these ‘schemes’ are based on trying to exploit loopholes tax legislation.
To try and level the playing field and make more contractors and companies aware of these practices, there is a new industry body that has been set up.
The Straight Talking Umbrella Company Charter is a 11 point guideline that all compliant umbrella companies should work to in order to satisfy HMRC. The important thing to understand with this charter is there are no membership fees. It has been set up to raise awareness of all those legitimate and professional umbrella companies (just like us!), and to provide contractors and freelancers with an assurance that they are in safe hands.
The 11 point charter is as follows:
- All workers will be employed by the Umbrella Company under an over-arching Contract of Employment to effectively give the status of permanent employee to a temporary worker.
- The contract must contain a continued mutuality of obligation and a continuity of employment.
- There must be a guaranteed minimum number of hours (336 in a 12 month period).
- The contract entitles the worker to statutory payments e.g. statutory sick pay which is the financial responsibility of the umbrella company. No amount should be deducted from the rate included in the business to business contract between the umbrella company and agency/client to cover such payments.
- Travel and subsistence expenses will only be payable if an over-arching Contract of Employment has been signed by both parties and if the worker intends to have more than one assignment whilst in the employment of the umbrella company. If we know that the worker will only have one assignment whilst in our employment, travel and subsistence expenses will not be allowable. Once notice of resignation has been given the workplace would be regarded as permanent and therefore travel and subsistence expenses would no longer be allowable. After a period of 24 months at the same location, regardless of whether this is via the same intermediary or not, travel, subsistence and accommodation expenses will no longer be allowable. This also applies when the umbrella company employee becomes aware that the contract will exceed 24 months.
- Employer’s National Insurance is payable to the HMR&C each month by all UK employers and umbrella companies are no exception. An amount to cover this legal obligation is deducted from the contract rate, agreed in the contract between umbrella company and agency/client, before the worker’s salary is calculated. The umbrella company’s margin is also deducted from the contract rate before the salary is calculated.
- The Worker’s salary will be subject to income tax and employee’s national insurance which are calculated according to the rates issued by HMR&C for that financial year. No portion of the worker’s salary will be subject to any tax treatment other than PAYE. The umbrella company agrees that all deductions made for PAYE will be determined by HMR&C and that the only expenses processed will be those that are allowable under HMR&C rules.
- We further agree that it is the responsibility of the umbrella company to police all expense claims made by its workers and can confirm that weekly random inspections of expense claims are made and that supporting evidence can be provided. These random expense checks will represent 10% of invoices raised and any improper claims will be disallowed.
- Scale rate payments are used to reimburse expenses which will always be of a similar value and which are difficult to obtain receipts for e.g. subsistence. They can only be paid when an allowable expense has been incurred and they can only be paid when that expense is being directly reimbursed by the employer and not as part of any kind of salary sacrifice arrangement.
- Agency Workers Regulations: All workers who are employed through an umbrella company will fall within the scope of this legislation by virtue of the fact that they are a worker under a contract of employment and are not in business on their own account. Therefore, no umbrella company should sign a document to the contrary as that would enable them or a third party to avoid their responsibilities under the legislation.
- To pay at least National Minimum Wage (NWM) and expenses reimbursed will not form any part of the NWM calculation.
You will be pleased to know that Liberty Bishop are fully supporting the Straight Talking Umbrella Company Charter, working to the guidelines (as we have always done).
For more information on the charter – visit their website http://www.allumbrellacompaniesareequal.com