Fact: All PAYE Umbrella Companies pay you through the PAYE scheme and your tax and NI contribution is deducted, according to your tax code, each time that you are paid. Your taxable income will be reduced when you claim legitimate business expenses BUT the Inland Revenue dictates what expenses you can claim and not the Umbrella Company and therefore your net earnings (or take home pay) should be the same whichever PAYE Umbrella Company you use.

Fact: All Umbrella Companies  should work to the same  guidelines as set down by HMRC. The only difference is the cost that the Umbrella Company charges. All other elements including the amount of tax and National Insurance, and  what expenses you can off-set are set out under very strict criteria from the HMRC.

Fact: The dispensation relates to the company not the contractor.  Without a dispensation an Umbrella Company has to complete a P11D form which is a labour intensive exercise to record all expenses off-set. A dispensation allows them not to complete this form for expenses below the amount of the dispenstation. This does not affect how much a contractor can claim – it is merely a recording method of expenses incurred.

Even if the Umbrella Company doesn’t require receipts for expenses below a certain limit the you can only claim for expenses that you have actually incurred (i.e money that you have spent).  You will need to keep receipts for expenses you claim where the Umbrella Company doesn’t require receipts for 7 years in case HMRC decide to audit YOU.  You will have signed an expense record form telling your Umbrella Company that you have incurred those expenses, and if you are unable to prove that to HMRC at audit you will be faced with repaying the tax and NI and potentially a fine.

Fact: This is true - any expenses you incur will reduce the amount of tax you pay. However, you should just remember that in order to off-set  the expenses you  actually need to have spent the money on an allowable business expense.  You should note that you will only be off-setting the expenses against tax & NI and not receiving back the amount that you have spent.  So, whilst the income will go up, so do the expenses! 

Fact: A subsistence payment is, by definition, one that does not have to be supported by receipts. The only subsistence payment permitted by the Inland Revenue is £5 per night (£10 if abroad) for each night spent away from home during the course of the contract. You must be able to produce receipts for any other costs that you claim as an expense; the Inland Revenue requires that you keep your receipts for a period of 7 years.  You do not need to supply these receipts with your expenses but you must keep them in case the HMRC audits you.

Fact: You can claim actual meal costs up to agreed limits whilst you are working at a remote site i.e. away from your normal place of work or when staying away from home overnight BUT daily claims for meals are not permitted. It is the Inland Revenue’s belief that you need to eat regardless of whether or not you are at work so the meal costs are not wholly attributable to the contract and can, therefore, not be claimed as an expense. “The cost of food, drink and accommodation is not in general an expense incurred wholly and exclusively for business purposes, since everyone must eat in order to live...” - Extract taken from the Inland Revenue website: http://www.hmrc.gov.uk/manuals/bimmanual/BIM47705.htm

Fact: This is not true so long as your Umbrella Company truly is an Umbrella Company.  That is to say that your Umbrella Company operates as a PAYE Umbrella and treats you as its employee.  Recent legislation does leave you liable if you work through an MSC which is generally characterised by paying you Gross, or via dividends. 

“In umbrella companies workers are treated as employees of the umbrella company and all payments to workers as employment income which is paid in the form of salary and allowable expenses. It follows therefore that what the worker has received from the umbrella company is the same as they would have received from any other company through which the worker operated and which treated all payments as employment income. Consequently the third condition is not met and the umbrella company does not meet the definition of a Managed Service Company.” - Taken from Managed Service Companies Guidance published by HMRC on 10th July 2007

Fact: Being paid salary and dividends would be more financially beneficial to you, however you can only legally be paid in this way if your contract is IR35 friendly (outside IR35) and you are receiving payment through your own personal Limited Company, over which you have complete financial and administrative control.

From 6th April 2007 any involvement from a third party in running a Limited Company (other than accountancy services) would place you under the scope of a Managed Service Company (MSC).  If you receive your payments via a third party, or your contract fails IR35 (inside IR35) and you are running your own ltd company you can only be paid through PAYE.

Fact:  It doesn’t really matter whether you want to be self-employed, IR35 is the set of guidelines that will decide if you are actually self-employed.  If you are running your own Ltd Company but are deemed to be employed then you need to be paid through PAYE.  IR35 has a number of “test” that it applies to decide, but a good place to start is to look at the HMRC’s website, an extract of which is quoted here:

As a general guide as to whether a worker is an employee or self-employed; if the answer is 'Yes' to all of the following questions, then the worker is probably an employee:

• Do they have to do the work themselves?
• Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
• Can they work a set amount of hours?
• Can someone move them from task to task?
• Are they paid by the hour, week, or month?
• Can they get overtime pay or bonus payment?

If the answer is 'Yes' to all of the following questions, it will usually mean that the worker is self-employed:

• Can they hire someone to do the work or engage helpers at their own expense?
• Do they risk their own money?
• Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?
• Do they agree to do a job for a fixed price regardless of how long the job may take?
• Can they decide what work to do, how and when to do the work and where to provide the services?
• Do they regularly work for a number of different people?
• Do they have to correct unsatisfactory work in their own time and at their own expense?

http://www.hmrc.gov.uk/employment-status/index.htm#1

Fact: Your contract CAN be written to fall outside of IR35, yet this becomes irrelevant if you are faced with an IR35 investigation as it is your working practices that the HMRC is interested in. If you are found to be outside the IR35, paying yourself dividends and minimum wage, you will be liable to pay all unpaid tax with a fine and it could also result in a prosecution.

“Where we find that the incorrect classification has been applied in respect of a particular engagement, we have a duty to ensure things are put right for the past and, where appropriate, for the future. Interest and penalties may be charged on any additional tax/NICs due as a result of any review or enquiry.” – Taken Directly from Inland Revenue website: http://www.hmrc.gov.uk/ir35/ignoring.htm

Fact: It is irrelevant which Umbrella Company you are paid through it is the place of work that is important. Once you have been on a site for more than 24 months this is deemed as your permanent place of work and hence you can not claim expenses, travel to that location or accommodation.

The following link gives an example of the 24-month rule, taken from the Inland Revenue website: http://www.hmrc.gov.uk/manuals/eimanual/EIM32106.htm

Fact:  If you claim fraudulently this falls totally on YOU .  It is YOU whowill be investigated, and if found to have claimed fraudulent expenses, liable to pay any tax deficit.  You could even face prosecution.  You will make a claim to your Umbrella Company telling them the amount of expenses you have incurred, and whilst all responsible Umbrella Companies will check that claim to make sure that it is within HMRC’s guidelines for you to claim expenses of that kind, an Umbrella Company can not know whether you did incur that expense where they are not required by HMRC to see receipts.  For example, did you drive a route to work which was 20 miles or 23 miles today?  By signing your expense claim you are testifying that you have incurred those expenses.  Dramatic, yes! But if you are faced by a HMRC audit those “statements” you have made about the expenses you have incurred will be closely looked at.  Your Umbrella Company will have processed your pay based on the facts that you have presented them with.

Fact: These are in fact are illegal and have been since 1987 and could end up costing a contractor more –the HMRC will  force you to pay all unpaid tax and NI.

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