Claims made by Umbrella Companies

The top 10 claims made by umbrella companies. Detailed below are some claims made by umbrella companies to entice you to use them. However they are more than often a trap to get you onboard to a tax avoidance scheme.

My umbrella told me…

“Our solution is fully compliant and has been approved by HMRC.”

Ask for proof – you won’t get it because HMRC don’t approve anything. Oh and a dispensation is not HMRC approval. It’s just a notice that they issue that” removes the requirement for the employer to report certain benefits on a P11D at the end of the tax year”.

“We are fully IR35 compliant.”

IR35 determines the way that you are paid and applies to contractors working through their own Limited Company. If you are ‘inside’ IR35 you can’t draw dividends from your company but must process payment through PAYE. Umbrella companies make all their payments through PAYE so IR35 is, in fact, irrelevant.

“Earn more by claiming expenses.”

You may be entitled to claim tax relief on expenses but this does not translate into ‘earning more’. You may be entitled to £20 tax relief on an expense of £100 but you would have had to cough up the £100 in the first place.

“Take home 90% of your contract income.”

Umbrella companies are employers and should operate PAYE. The starting rate of tax is 20%. Even someone who is really, really bad at maths can see that this claim doesn’t stack up!

“We have a unique dispensation.”

The dispensation may or may not be unique to that umbrella company but, either way, it doesn’t make them special. If umbrella companies didn’t have dispensations they would have to record every single expense for every contractor on an HMRC form at the end of every financial year.

“We don’t have our own solutions, so provide an impartial service.”

Translated as “we are recommending tax avoidance schemes but we don’t want to run one ourselves. We know that it won’t be long before HMRC come calling”.

“See how much more you can take home with our calculator.”

How much more than what???? All umbrella companies pay through PAYE and they can only allow expenses that would be allowed by HMRC. Beware calculators that ‘assume’ you will be claiming expenses.

“Supported by leading tax counsel opinion.”

And that opinion may be ‘this scheme is rubbish’. Ask to see a written copy of the ‘opinion’. Then run it past HMRC and see if they agree that the scheme is safe for you to use without running the risk of additional tax bills. QC’s have been known to be wrong!

“Get £25 per night every time you stay overnight on a friends sofa.”

To be fair this did used to be the case. But HMRC changed their guidance in April 2009, so any umbrella company still claiming this is a little behind the times!

“Increase your net pay with ****umbrella.”

All umbrella companies pay through PAYE. HMRC determine what can and cannot be claimed as an expense, so it is unclear what this claim is based on but it is certainly not ‘compared to any other umbrella company’.