CIS and Umbrella Company

CIS and Umbrella Company

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HI,

A client of ours has always been self employed. He is being told by one of his main contractors that he must no longer be self employed (maybe a knee jerk reaction to the new agency rules?).  They are encouraging him to use an 'Umbrella Company' - what a rip off ! My question is what happens to the CIS requirements?

I assume the Umbrella would need to be CIS registered even though he is now technically an 'employee'....

His liabilities/responsibilities under CIS must end and be passed to the Umbrella or am I missing something?

Replies (9)

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By stratty
11th Jun 2014 14:23

False Self Employment

No doubt a knee jerk reaction to the False Self Employment legislation.

The Umbrella Company should be CIS registered and receiving payments under the scheme.

What is your client's trade type?

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RLI
By lionofludesch
11th Jun 2014 14:39

The upside

Maybe the saved NI will cover his increased admin costs.

Sometimes you just wonder about HMRC's tactics, don't you ?

Who's gaining from this gibberish ?

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By KungFuKipper
11th Jun 2014 17:21

Thanks

He's a sparky..proper, jobbing sparky - half a dozen well cultivated main contractors passing him work and suddenly...no more.

Looking at the Umbrella calcs he will pay 13.8% Eer NIC on top of the 12ee plus £25 a slip....for no good reason. Also not altogether sure I would trust some of the Umbrellas out there with the CIS deduction.....who knows where the liability for unpaid tax would fall if they went bump?

Makes you wonder what the point of all the faffing is sometimes.

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By stratty
11th Jun 2014 17:34

CIS - Irrelevant

The CIS element becomes irrelevant.  Whether the payroll company is compliant or not in that respect is not your concern.

Your client would be an employee of the company and that is his relationship.

Of course he could look at circumventing this arrangement in a couple of ways.

1.) Different payroll company

2.) Trade through a Ltd Company

3.) Contract direct as opposed to through an agency

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By Christine Marsh
26th Jun 2014 09:25

Eer's NI on CIS

I contacted HMRC about contractor having to pay the Eer's NI under this new umbrella scheme, they were aware of it, said it shouldn't be happening but not quite sure what to do about it as so many enquiry departments had been closed!

I'm just calculating client's self-assessment, it's an absolute nightmare as they have paid him minimum wage, and given him the balance as 'expenses', so I now have to calculate what they have taxed him on, what he's received in expenses, and deduct his actual expenses to balance his tax liability.  The only winners here are the Umbrella companies!

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Replying to andy.partridge:
RLI
By lionofludesch
26th Jun 2014 10:14

Sounds like ...

Christine Marsh wrote:

I contacted HMRC about contractor having to pay the Eer's NI under this new umbrella scheme, they were aware of it, said it shouldn't be happening but not quite sure what to do about it as so many enquiry departments had been closed!

I'm just calculating client's self-assessment, it's an absolute nightmare as they have paid him minimum wage, and given him the balance as 'expenses', so I now have to calculate what they have taxed him on, what he's received in expenses, and deduct his actual expenses to balance his tax liability.  The only winners here are the Umbrella companies!

Sounds a bit like .... errrr .... self employment.

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By Barry Mellor
26th Jun 2014 11:04

How an Umbrella Works

The Contractors are employees of an Umbrella Company on an overarching employment contract.

 

The employer raises invoices for their services.  The contractors as a representative of the company agreed this charge out rate (contract rate) with agency/end client.  This is the rate the Umbrella Company invoices for the employees’ services and are therefore the funds of the Umbrella Company.

 

The employees gross salary is not the charge out rate (invoice/contract rate), from the funds received the Umbrella Company must account for any cost to the Company which include the administration fee, any allowable expenses that have been processed, and employers national insurance. The remaining funds are then used to pay the employees salary. 

 

Any expenses must be incurred wholly, exclusively and necessarily in the performance of employment duties but as long as the temporary workplace rules are satisfied travel and associated costs to temporary workplace will be allowed. 

 

If you are dealing with a reputable Umbrella this should have been explained in full to your client 

 

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Replying to Cheshire:
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By Christine Marsh
27th Jun 2014 12:34

Umbrella Company

Thanks Barry, explains quite a bit.  However, still disagree with the treatment of expenses by the Umbrella company.  These in no way reflect the actual expenses incurred, despite client sending original receipts etc.  Expenses is used as the balancing figure after taking into account Gross Wages at NMW, employers' NI, admin fee and holiday pay.

Seems unfair the contractor is hit with the employers' NI just because HMRC feel there is a misuse of the system.  I'm sure there will be more on this topic in the future.

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By Barry Mellor
27th Jun 2014 12:47

Uplift

An agency would normally uplift the PAYE rate to an Umbrella to cover Employers NI.

 

For a tax return you just take the figures from the P60 (P45 if left in year0 and for expenses the P11D figures.  If the Umbrella has a dispensation your client would not have a P11D and the Umbrella may be using scale rate allowances.

 

 

 

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