Umbrella Company

pop_gun

I recently started a new job through an agency. The agency told me I would be paid through an umbrella company. This umbrella company will charge me £25 a week. I obviously think the amount is too high so I phoned around and got a much cheaper quote elsewhere. My agency won't hear of it and said I must use the umbrella company they recommended.

Is it legal for them to force me to use this umbrella company?

If I'm taxed at 30% is there any way under PAYE I can get a rebate or is this standard practice?

agrinnall

I don't know if they can legally enfoce a particular umbrella company bit it wouldn't surprise me, you have a choice, go with what they say or don't take the job. Don't know what you mean by being taxed at 30%, can you explain that? An unbrella company will tax you under PAYE as normal, but you will also have to pay the employers NI in addition.

pop_gun

My colleague all say they are being taxed at 30%. I asked the umbrella company and they said the HMRC decide whether to tax you at 20% or 30%. The person I spoke to sounded very dopey so I wouldn't put much stock on what they had to say but I do where my colleagues are concerned.

Russe11

If your earning a proper selfemployed rate, then your on to a winner being able to offset your expenses and should earn more than PAYE.

If your on just a bit more than being on a PAYE, then all I can say is welcome to the scam.

The only benefit is for you employer saving money, I would have a pint on the umbrella company being owned/housed under the same company as your employment agency or if that not the case part of your £25 fee is back handed to the agency.

agrinnall

pop_gun wrote: »

My colleague all say they are being taxed at 30%. I asked the umbrella company and they said the HMRC decide whether to tax you at 20% or 30%. The person I spoke to sounded very dopey so I wouldn't put much stock on what they had to say but I do where my colleagues are concerned.

Well, tax rates are 20%, 40% and 50%, so if all your colleagues are being taxed at 30% they must all be earning exactly the right amount, which I can't be bothered to work out, so that the combination of personal allowance, basic rate and higher rate tax comes to 30%. That is so unlikely that I think I'd extend the dopey description to your colleagues.

Notmyrealname

pop_gun wrote: »

My colleague all say they are being taxed at 30%. I asked the umbrella company and they said the HMRC decide whether to tax you at 20% or 30%. The person I spoke to sounded very dopey so I wouldn't put much stock on what they had to say but I do where my colleagues are concerned.

They are having 30% of their wages deducted but in fact it should be nearer 50% going on how most umbrella companies work.

When you get paid, you have 12% of income above £107 a week deducted as NI and 20% of income above £156 a week deducted as income tax.

However working through an umbrella company, they also deduct the employers NI they have to pay which is 13.8% of everything above £107 a week. And in addition they also set aside holiday pay which is 12.07% of your gross in order to pay you holiday pay when you take time off..

So...
For the first £107 a week you have 12.07% holiday pay plus the £25 fee deducted.

For everything between £107-£156 a week you have deducted:
12.07% holiday pay.
12 % employee NI
13.8% employers NI
= 37.87%

For everything above £156 a week you have deducted:
12.07% holiday pay.
12 % employee NI
13.8% employers NI
20% income tax
= 57.87%.

So if you earn £300 top line you pay out:

£25 fee
£36.21 holiday pay
£23.16 NI
£23.64 Employers NI
£28.80 Income tax.

= £136.81 stoppages giving you £164 take home pay. But as the £25 they deduct is tax deductible you'll get about £7 of that rebated so you'd have £171 ish. If they don't take off holiday pay you have about £210 take home but then when you go on holiday, you don't get any holiday pay.

Now they will apply some tax allowances against that such as travel to work, uniform washing and possibly a meal allowance so your take home will be higher.

However one umbrella company said that unless you earn over £350 a week and have at least 1/3 of that as claimable expenses you're better off on PAYE.

InsideInsurance

The other option presumably is to use a Ltd rather than an umbrella if the rates make it worthwhile to do so.

Agencies tend to be very quiet about their requirements and stipulations etc until the 11.9999th hour at which point they spring on you the fact theres a 28 day payment clause etc. As you get more experienced in this method of working you get to know the questions to ask upfront of the agency before messing about. As your rates get higher you also have more ability to dictate terms.

Notmyrealname

InsideInsurance wrote: »

Agencies tend to be very quiet about their requirements and stipulations etc until the 11.9999th hour at which point they spring on you the fact theres a 28 day payment clause etc.

Thats why you have a terms of business you get THEM to sign.

InsideInsurance

You could try, must admit never heard of anyone doing it. Not sure how successful you'd be if your ToBA had weekly billing but they only operate calendar month etc.

pop_gun

Notmyrealname thank you for your earlier post on the cost analysis of the umbrella scheme.

I got paid on friday and tax and NI + employers NI came to 31.5% of my gross wage. I'am absolutely fuming.

The umbrella company said that this method of payment was PAYE. I asked about becoming self employed, although due to the nature of my job they say I can't (even though I have a UTR number). I did check the HMRC website and the umbrella company are right, the definition of a self employed person doesn't apply to my job. Colleagues of mine, doing a similar job to me, on fixed hours contracts are registered as self employed.

Would it be cheaper to start a company and have my wages paid into it instead as I could then claim back travelling expenses at the end of the tax year? What loopholes exist for what can only be described as a tax scam from the HMRC (IR35).

SteProud

Hi pop_gun

I work for an umbrella company so I am not impartial but are you claiming for all the legitimate expenses that you are entitled to?

What line of work are you in as this can impact on the type of umbrella company you can use. In a nutshell however, no agency can force you to work with a particular umbrella. Most agencies do have PSLs (prefered supplier lists) though. This largely to protect themselves and you. There are stories of umbrella companies going under overnight leaving workers unpaid and the agency has to fork out twice. Lots of other dodgy practices too and PSLs are used to protect you from this.