Umbrella Company not paying tax

keyser666

Derwent wrote: »

If they are paying you a dividend payment rather than a wage from the umbrella company then it's perfectly feasible that you would pay little or no tax on those dividends providing that corporation tax has first been deducted from the company's profits.

They cant pay them dividends from the umbrella company

notanewuser

Probably worth a call to HMRC, OP.

Jagang

Well I called HMRC and they said that they had been told that my second job was my only job and so my tax codes were wrong.

That's has now been sorted and SDC have had a piece of my mind as they told me this morning that everything was fine and that I was paying the proper tax and now I just have to wonder what it is exactly I pay them for.

Thanks for all the responses

getmore4less

The you pay the employers NI. is NOT a loophole,

You earn money for the umbrella company it is not yours.

They pay you from what's left after theire commitments as an employer.

Ader1

I'm being payed by an umbarella company too. I hope it's fine for me to ask my question here since you seem to have been sorted jagang after a call to HMRC. I get a form from them every week entitled 'Remittance Advice'. And on it under 'Payments' it says 'Holiday Pay'. But this is never added to my pay. Anybody know what's the position of Agency employees with regards to holiday pay. I did ask a guy at the umbarella company and he said that it was simply ther for my information only whatever that meant.

getmore4less

Ader1 wrote: »

I'm being payed by an umbarella company too. I hope it's fine for me to ask my question here since you seem to have been sorted jagang after a call to HMRC. I get a form from them every week entitled 'Remittance Advice'. And on it under 'Payments' it says 'Holiday Pay'. But this is never added to my pay. Anybody know what's the position of Agency employees with regards to holiday pay. I did ask a guy at the umbarella company and he said that it was simply ther for my information only whatever that meant.

You need to understand how the cash flows.

This is the way the one I used did it.
( it makes sense once you get your head round it)

You earn money for the umbrella, from this pot of cash
The umbrella pays you a wage and holiday pay
(you pay tax and NI on that),


Needs to pay employer NI on that wage


Pays you expenses Gross.


Takes a cut.


So the cash flow from the gross you earn for the umbrella.


1.They take their cut


2. Then they take off the Expenses that you have paid for/can claim tax free(you get this back later)


This leaves the money left to actually pay you


The calculation to work out the various components need the HMRC tables for tax and NI but roughly( I did it on a spread sheet)




13.8% over £153pw. for Employer national Insurance.
12.07% for statutory holiday pay


As long as the money left can pay more than min wage(if not they have to delay expenses.) for the hours worked and the holiday hours.


So from the pot of gross money
(mine used roll up holiday pay)


Gross pay+ Holiday pay+ employer NI


I get
Gross + holiday pay - (Tax + NI).


Then expenses are added back on to get the actual money paid.




IF the company is not paying the holiday pay with each wage then it should be carried over and paid when you take holidays.


If you put up the numbers from the gross you earn and all the details on the pay slip and other pay related communications(for two pay periods) can work how they are doing it and if the holiday pay is rolled up or accumulated to be paid later.

getmore4less

The umbrella I used got the calculations wrong so you have to check very carefully

To work back from your pay.

If these total your earnings to the company are the same as
gross pay
Employer NI
Expenses
Umbrella cut.
Then they are rolling up holiday
If not then probably accumulating but then there is a chance they may get it wrong

another way is to look at the gross and holiday pay

If on the pay slip the holiday pay is 12.07% of the Gross then it is probably accumulated
If the holiday pay is 10.77% of the gross then it is probably rolled up.

AbbieCadabra

getmore4less wrote: »

The you pay the employers NI. is NOT a loophole,

You earn money for the umbrella company it is not yours.

They pay you from what's left after theire commitments as an employer.

if it's not a loophole/quirk of the rules, then why aren't ALL employers getting employees to pay employers NI? what's the difference with an umbrella company, they are still classed as an employee aren't they?

genuine question, not looking for an argument

getmore4less

AbbieCadabra wrote: »

if it's not a loophole/quirk of the rules, then why aren't ALL employers getting employees to pay employers NI? what's the difference with an umbrella company, they are still classed as an employee aren't they?

genuine question, not looking for an argument

IN a way all companies get their employees to pay the employer NI it is just not documented and it is often indirect if you are not a direct revenue generator.

The issue is people confuse the revenue they generate for the umbrella company as their own income.

It's not, it is revenue for the umbrella, just like a sales person in Currys/Tesco/ generates revenue for them.

The companies meet their obligations from the revenue, one of those is to pay people and any Employer TAX due on those payments.

Both the umbrella and any other company pay the Employer NI from their revenues.

The main difference is the way the contractual remunerations relates to the revenue generated.

For umbrella it will be related to all revenue you bring in individually.

For other companies it may be independent(salary/hourly) or maybe commission a % of revenue or target related bonus etc.

The only thing both have to do is pay min wage.

Bottom line is all companies(including umbrella) set the wages based on the fact they have an overhead of employer NI to pay.

Where employees go wrong is not understanding how Gross pay as a direct employee and the revenue needed to create the same gross through an indirect route.

As a rough guide,
you need 13.8% to cover the employer NI
You need 12.07% to cover statutory holidays
You need to cover the admin costs.

If the uplift from direct employee is not at least 30% then the rate is too low.

To cover other benefits and job security I think you need at least 50% and for some industries 100% is considered reasonable.

Some of the uplift required can be offset by getting some gross through a slightly more generous interpretation of allowable expenses by HMRC.
...........................

Turning the question round

How do you think an umbrella should pay employer NI. how does it generate the money to pay it?

AbbieCadabra

getmore4less wrote: »

Turning the question round

How do you think an umbrella should pay employer NI. how does it generate the money to pay it?

exactly the same way as we do for our staff, it's a Company expense/overhead.

i think i understand what you're trying to say,
i.e. we'll pay our staff £15 p/hr gross, we can't afford to pay £20 p/hr gross as this will bump up our total tax/ni & we won't be making a profit.
our total Company overheads all need to be accounted for when deciding what rate of pay/bonus/commission etc. we can afford to pay, & still make the business profitable (or as in the past few years, at least break even).

i think the fact that the umbrella companies actually state that employees will be paying employer NI, whereas no other employer (that i'm aware of) does this, but as you say, in effect, all companies are doing the same really.