Bishopsgate Welcome HMRC Guidance on Working Through an Umbrella Company

HMRC have recently produced guidance to contractors on what to expect when working through an umbrella company. The document provides clear guidance on how a worker will be paid, what the worker is paid (including clarity on deductions and entitlements), key documents that should allow the worker to understand their pay and how to spot if an umbrella company may be operating a tax avoidance scheme.

Bishopsgate have longed for government guidance and clarity on the use and operation of umbrella companies. This publication provides the key information that all workers require to ensure they are working through a compliant and trustworthy provider. With the industry not regulated by a government body, it can sometimes to hard for workers to know which umbrella companies they can trust and operate in an honest and transparent manner. Bishopsgate believe that this is a step in the right direction to removing the stigma that can sometimes be associated with umbrella companies. The guidance, which can be found at https://www.gov.uk/guidance/working-through-an-umbrella-company provides clear guidance on the following areas, all of which should be examined and considered by a worker before agreeing to contract via an umbrella company:

1. Who will pay the worker – the worker will be paid by the umbrella company as they are the worker’s employer.

2. How will the worker be paid – The umbrella company receives payment from the client that the worker is providing services to. The rate that the client pays to the umbrella company is different to the workers rate of pay, as there are additional costs for the umbrella company to cover before making payment to the worker.

3. What the worker will be paid – the worker will receive a gross payment which is subject to the usual employee deductions, which may include:

a. Income tax

b. Employee National Insurance

c. Pension contributions

d. Student Loan or Court order deductions (where applicable)

The worker will then be paid a net pay amount (take home pay).

4. How the worker can understand their pay – the worker will be issued with key documents that further explain their pay, these include:

a. Key Information Document – this should be issued by the agency client before the worker starts on any assignments.

b. Reconciliation Statement – this should be issued with each payment and will provide a breakdown of the assignment rate received by the umbrella company, as well as all the umbrella company’s costs.

c. Payslip – this will include a breakdown of the gross payment to the worker, showing all the deductions through to the worker’s net pay. This will also detail the number of hours worked for the payment.

5. How the worker can identify a tax avoiding umbrella company – guidance is provided within the publication at https://www.gov.uk/government/publications/tax-avoidance-facts

For more information on umbrella payroll or to discuss your payroll needs with an umbrella expert please contact us at info@bishopsgatepay.co.uk or call us on 0203 019 4990.