The Channel 4 “Dispatches” programme has resulted in extensive media coverage of why some umbrella companies are under investigation or have been accused of exploiting workers who work on contracts through them.
Because of the rapid growth in the number of people who are choosing contracting or self-employment as an alternative to traditional jobs, questions over the legitimacy of some umbrella companies are, understandably, a source of some confusion.
However, this programme was produced for impact and there are good umbrella companies and the reputable ones are often an asset to the workers who use them to handle the administration of their finances. Those who choose to work through an umbrella company are a mix of highly skilled professionals who are only temping for a short period or workers who don’t want the hassle of setting up and running a Limited company.
HMRC has recommended that you do your homework as you will be responsible for any mistakes or oversights when it comes to your tax.
Too good to be true!
The first thing that should ring alarm bells is any company which appears too good to be true. If a company claims it can help you to retain 90% of your income instead of paying the appropriate level of tax is probably using a tax evasion scheme.
It is doubly important to check expense claims made on your behalf by the umbrella company. HMRC are looking at expense claims made via umbrella companies. Be wary if the umbrella company promises that you can claim expenses which you haven’t incurred, or ‘round-up’ to the HMRC limit for daily expenses. These are exactly the companies that HMRC are looking at.
If you are unsure of how to go about finding yourself a reputable umbrella company, then seeking expert advice is a great idea. Sometimes, setting up your own company can be a more cost-effective way of working.
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