Paul Scholes
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What is the main benefit of an umbrella company

What is the main benefit of an umbrella company

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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By plummy1
20th Nov 2011 23:21

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. 

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21st Nov 2011 09:44

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.

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By plummy1
21st Nov 2011 14:35


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

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21st Nov 2011 17:10

Many thanks

Steve: Thanks for filling in the gaps, in particular I'd missed the fact that he would not have a perm workplace under the agency route.

John:  Thanks for the details, as it happens the contractor is an employee under IR35 as well, so being an employee doesn't, in itself, avoid IR35.  I've been on their website and am fascinated how a plain & simple PAYE arrangement can net him 83% of the contract payments.  The only time I saw this was with offshore employee benefit trust arrangements that I thoought were being outlawed, anyway will have a chat with them.

Thanks both

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By plummy1
to Tim Vane
23rd Nov 2011 20:15



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.





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22nd Nov 2011 13:55

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.

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23rd Nov 2011 23:27

Remuneration Trust?

Hi John - I had a long chat with a guy from Bedouin explaining that I was an accountant wishing to advise a family member/client about their solution.  I was upfront with him and made it clear that I had other contractor clients who may be interested but obviously I couldn't advise them without knowing how it worked. 

I gave them all the figures and my own personal details and promised that anything I was told would be kept in confidence for my clients' interests only, and they would have been. He was very polite and understanding and said that someone would call me back today to discuss it.

They didn't and this, together with the secrecy, is enough to put me off.  Basically if you have something that's legal, watertight and a great idea you'd want to shout about it.

This experience mimics how I learned of EBTs a couple of years ago, cloaked in secrecy with lots of bandwagon operators getting in before the inevitable closure of the loophole. As I told potential users then, this was less than than best use of tax legislation, it smelled and was not something I was comfortable with so if they wanted to use it they were on their own.

I'm guessing that the replacement vehicle is a remuneration trust, ie just another cheap dodge relying on the inertia of HMRC to combat obvious misuse of existing legislation and vehicles.  If I guessed wrong I'll come back.


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By cfield
24th Nov 2011 00:05

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.


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24th Nov 2011 08:12


Thanks for filling in more gaps in my knowledge, or rather identifying the gaps!

It does all seem a mess and, given that the typical contractor just wants an easy time, I can see why they sign up for the UC "system". Obviously the majority know nothing of the potential tax problems over expenses and care less.  It also explains why I have lost a couple of PSC clients to them over the past year.

I've just learned that my family member has discovered the remuneration trust route and rejected it, he's also had a "proper" job offer which I hope he takes.  At least I'll be able now to follow the discussions and press over UCs. Interesting to see if they will become a thing of the past in a couple of years.

Thanks again to all.


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25th Nov 2011 14:28


Hi - Simon Nash from Bedouin called and we had a long chat.  I guessed wrong, it is not a remuneration trust and no trust arrangement is involved however for obvious reasons it must stay secret until I and any potential client signed a non diisclosure agreement.

So I have no axe to grind other than to say that if it is exploiting poor legislation AND it becomes widespread then almost certainly, the government will look to shut it off.

Roll on retirement


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