Umbrella company v PAYE for 6 mth agency contract

rosie383

Umbrella company or not?
Please can someone who knows, give some advice.

My husband was made redundant recently and has been offered a new 6 month contract through an employment agency, which, hopefully will turn into a permanent position after that.
He has been contacted by some umbrella companies who want to sign him up. According to him, a lot of the guys he was recently working with are using this method of paying their tax and find it financially worth their while.
After reading Pennywise's advice above, I read up on IR35 and it's maybe all not as good as these companies are making out. My dh wants to sign up with one, and wants me to try to decide which is best to go for.
Company A says they will give him 80% of his wage in his hand, but no holiday or expenses payment over this.
Company B says he will get 70% of the wage, but be entitled to paid holidays and can claim expenses like travel, food etc. I have already pointed out that food can't be claimed for according to HMRC, and looking at what is said above, he probably couldn't claim travelling expenses either. He would be doing a round trip of 75-80 miles per shift.

So, the big question...... is there any point? Unless he claims for things he maybe wouldn't strictly be entitled to, is he not going to just be paying a company his hard earned money to do what PAYE would do anyway?

scheming_gypsy

I'd just replied on the other thread

scheming_gypsy wrote: »

If he goes PAYE he'll get paid holiday pay and sick pay etc, but he won't get any tax breaks.

If he goes umbrella company he'll get a higher hourly rate poundss rather than pence, will be able to claim for fuel / travelling expenses and lunch expenses. If he's doing an 80 mile round trip a day, that's 400 miles a week and an extra £100 in his pay packet at the end of the week,

I use PayStream / MyMax. they might not be the best or the cheapest but I never have any issues with them.

either way he's paying somebody to do it. but he WILL come out more each week with an umbrella company over PAYE, he just won't get sick pay or holiday pay.

With an umbrella company his hourly rate gets paid to them. So for the sake of an example we'll say his hourly rate gives him £785 a week.

£785 goes to the Umbrella Company.
they take their fee of (say) £25.
Then there's employers NI (as somebody has to pay it and he's kind of self employed) of say £60.

so then he's at £700. Out of that £700 they take out expenses. 400 miles * .40 a mile = £160. and say £40 for feed expenses, which takes him down to £500.... So he only pays tax and NI on £500. If that takes him down to £400 they'll add expenses back on giving him a take home of £600

So yes, there is a point. It's not as financially viable as going ltd but it's a lot better than PAYE


**disclaimer** that's just done really roughly to explain the benefits over PAYE

IR35 doesn't usually affect umbrella company either as you're classed as PAYE on their books. It's really for Ltd

burnsguitarman

Before you sign up for an umbrella company, satisfy yourself that the 'expenses' they claim you can legitimately claim, are actually legit, Check out HMRC, and you'll probably find they're twisting the rules.
If HMRC decide to clamp down on these practices, it's you who'll have to pay!
Far better to go PAYE if you have the option, just for peace of mind.

scheming_gypsy

That's the only time I've ever heard anybody say it's better to be PAYE.

What you can claim is here --> http://www.freelancesupermarket.com/resources/umbrella-resources/what-expenses-can-be-claimed.aspx

rosie383

Quick question if someone can help us out please. One company has been calling my dh frequently, trying to sign him up.
He says that for a weekly wage of £1200, he would walk away with £1020 in his hand. I spoke to the sales guy to try to ascertain how they came to that figure, and he mentioned something about a 'retainer'. For tax purposes they would treat his income as only being £11k (or £11k less than the actual figure- can't remember exactly as he was talking all around the houses it seemed!).
I can't seem to find out anything about retainers when I Google, and we really don't want to risk going with a company unless we trust them 100%. I asked for a breakdown of the pay. I wanted to see how much tax, NIC would be paid.
This is the response:
"We don’t know what the figure will be as we don’t work it out until the end of the tax year when we do your tax return and pay the figures over to HMRC."
Does this seem legit? The company is Principal contractors (or PLC Prestige) and I can't find any reviews online about them or much info really.
Does 85% seem too good to be true and should we trust them, or go with another company such as Tarpon, who offer less but seem well established?

burnsguitarman

Why don't you call HMRC yourself, and hear their version of what is allowable or not.......just as we did.
I still stick by what I said and PAYE is the safer option, even if you do get less each month.
At least you know that your tax and NI is being paid, and you will receive holiday pay.

scheming_gypsy

rosie383 wrote: »

Quick question if someone can help us out please. One company has been calling my dh frequently, trying to sign him up.
He says that for a weekly wage of £1200, he would walk away with £1020 in his hand. I spoke to the sales guy to try to ascertain how they came to that figure, and he mentioned something about a 'retainer'. For tax purposes they would treat his income as only being £11k (or £11k less than the actual figure- can't remember exactly as he was talking all around the houses it seemed!).
I can't seem to find out anything about retainers when I Google, and we really don't want to risk going with a company unless we trust them 100%. I asked for a breakdown of the pay. I wanted to see how much tax, NIC would be paid.
This is the response:
"We don’t know what the figure will be as we don’t work it out until the end of the tax year when we do your tax return and pay the figures over to HMRC."
Does this seem legit? The company is Principal contractors (or PLC Prestige) and I can't find any reviews online about them or much info really.
Does 85% seem too good to be true and should we trust them, or go with another company such as Tarpon, who offer less but seem well established?

I'm with PayStream / MyMax. They send me a payslip every Thursday with a breakdown of tax and NI etc.
Other people here use Parasol or Danbro

rosie383

We did ring HMRC today and told them roughly what was being offered to us. They just told us that umbrella companies are legit and that they just act as a payroll. Will check out the companies mentioned above. Thanks.

Joe_Malone

Well my advice would be not to use Paystream or Pi**stream as I now refer to them. They are quite possibly one the most incompetent accountancy services or indeed business that I have ever dealt with. The point of using a company like Paystream is that they are meant to save you money. Paystreams charges were exorbitant, they took a double payment out of my account and continued to take a monthly fee after I had finished contracting and when it was clear my business account was dormant. They are now 5 months overdue on delivering my final accounts and customer service is non-existent.