I've had little to do with umbrella companies but a family member has been offered a year's interim post at a large organisation and can either run via the agency as an employee or arrange an umbrella company (UC) appointment.
From my quick reading the UC employs him and, because the arrangement falls under IR35, uses any expenses he wants to claim and their own admin fee to reduce the deemed salary upon which he suffers PAYE. Under the agency employment route I guess he'll be paid as normal but could claim the same expenses on his tax return to gain the tax relief.
So, simplistically, in addition to what appears a large % to the agency (compared to the UC fee) and the NI saving from the reduced salary under the UC, he appears to be far better off with the UC arrangement.
I haven't worked out the holiday pay difference yet as I can't quite follow what happens under the UC but from what I read the hourly rate he gets from the UC during his working weeks includes holiday pay, whereas the agency pay him throughout the entire year at work or on holiday.
I might have got the wrong end of several sticks here but any pointers would be appreciated.
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Other Schemes are Available
I worked as an interim for approximately 8 years and most of that was through an umbrella company such as those run by firms such as Giant. Since then have started my own company. I have discovered there are alternatives such as those offered by companies such as Bedouin where the persons status is actually as an employee which avoids any problems with IR35.
It also avoids the need to complete expense sheets which were always a pain in the proverbials as far as I was concerned. I do have a contact number for somebody at Bedouin but I will have to search it out if you are interested.
He will take more home ....
under the UC for the reasons you outline. There expenses claimed are as a result of very aggressive dispensations and usually include home to work at a temporary place of employment ... if he works for the agency this isn't going to be available as he won't have a main place of employment (if you see what I mean). The downside is that temporary workers now attract lots of employment rights and protections which won't apply to the UC person.
Bedouin
I have found the Business Development Managers name now. It is Simon Nash on 0845 519 2888 or 07031 790547. As far as I can tell it gives you all the benefits of being an employee while still retaining a high percentage of your pay.
If you do talk to him please pass on my regards.
John Plumridge
EBT's
Paul,
Your right that EBT's have been outlawed. I believe Bedouin pay the employee by means of a commercial loan. A certain percentage is paid PAYE but it is not a straight forward PAYE arrangement. I would be interested in your professional opinion.
Regards
John
Be careful
Their calculators may assume significant expenses and employer's NI so that although tax and employee's NI is low the contractor's net pay is somewhat less than they are led to believe.
Over-arching contracts
The thing a lot of UC contractors miss is that there must be an over-arching contract of employment for the travel and sub to qualify as tax deductible. Otherwise it is just a stand-alone contract, and the temporary workplace rules make it quite clear that the employee must be engaged on more than one contract with the UC in order for it to be a task of limited duration.
The trouble is that, by their very nature, most UC contractors tend to be people in IR35 assignments, temp-to-perm positions or simply temping between permanent jobs. Regular contractors are usually better off with their own PSC, even if they are caught by IR35 (which is not generally so cut and dried in those cases anyway).
Such people tend to leave the UC after one contract, so the travel and sub is not strictly deductible. Hence the trouble some of these UCs have got into over their dispensations.
What does puzzle me sometimes is what the difference is between an over-arching employment contract qualifying for travel and sub and a service contract requiring NMW.
Chris