Category Archives: Onshore Umbrella Companies

Onshore Umbrella Companies
Onshore umbrella companies usually give quite low returns to contractors. Contractor only keep around 60% to 65% of their income using this method.

That compares, however, with personal service company contractors who would usually keep about 75% of their money.

[caption id="attachment_750" align="alignright" width="234"] Onshore Umbrella Companies[/caption]

It compares even worse with contractors who use offshore umbrella companies. They keep from 85% to 90% of their income.
Contractors Earnings
Because contractors earn on average around £100,000 a year, that loss to the taxman can run into tens of thousands of pounds.

So, over the years this can amount to a very tidy amount of their income disappearing this way.

That’s why, therefore, more and more contractors are looking offshore.

85% – 90% Onshore Umbrella Company Alternatives

Posted on May 25, 2016 by admin

Onshore Umbrella Company Alternatives

It would be worth contractors looking at onshore umbrella company alternatives. These can give let them keep 85% to 90% of the money they earn.

Freelancers usually take the Personal Service Company or PAYE Umbrella Company route if they don’t go with offshore umbrella companies.

Therefore, if they want to stay onshore, there are a number of alternatives to those.

Indeed, there are a number of Umbrella Company Alternatives which are onshore rather than offshore.

They can be as attractive financially as offshore companies – and none of the money goes offshore.

So, they take advantage of tax incentives in the UK.

Limited Company Alternatives

Another alternative is to use a UK-based Tax Planning solution that allows you to continue to use your limited company.

Sometimes, agencies tell contractors that they have to use one of their recommended umbrella companies. They have a Preferred Supplier List.

There’s a good chance that the agencies are ‘getting a bung’ for doing this or getting some kind of ‘payment in kind’. This is actually illegal under the 2010 Bribery Act.

Agencies and Limited Companies

However, if contractors use one of the Umbrella Company Alternative solutions, which uses a limited company, agencies would not even be aware of it. The contractor would just tell them that they have their own limited company.

Agencies don’t insist that limited company contractors use umbrella companies.

So, here are examples of Umbrella Company Alternatives which use Limited Companies.

They make use of different tax incentives to cut the amount of tax that the contractor pays. All use the contractor’s limited company.

Example of Umbrella Company Alternative

Therefore, you should click on this to find out more information, or to apply, about umbrella company alternatives.

Compare the Umbrella Alternatives

One of these umbrella company alternatives should suit you. Also, they will save you lots of tax.

Furthermore, they use efficient tax planning to save contractors money while still using their limited companies.

Favourite Umbrella Companies for UK Contractors

Posted on December 23, 2015 by admin

Favourite Umbrella Companies

Many people have their favourite umbrella companies. That’s especially true for agencies who tend to only include those umbrella companies on their Preferred Supplier List who give them bungs for sending contractors their way.

The 2010 Bribery Act bans this but it happens.

However, that’s another story.

So, what constitutes a favourite umbrella company?

Dodgy Umbrella Companies

Firstly, one that doesn’t try to con you in the contract.

Make sure you read the contract and if you see any clause detailing any penalties for leaving the umbrella company, run a mile.

Umbrella Company Recommendations for UK Contractors

If they are being sneaky and duplicitous in the beginning that’s because they are, well, sneaky and duplicitous.

If you go with that umbrella company you really have started off on the wrong foot.

Umbrella Company Recommended by Agency

So, should you go with the umbrella company recommended by your agency?

You would if you were an idiot.

There’s almost certainly one reason, and only one reason, that your agency are recommending a particular umbrella company to you and that is that they expect to get a fee from the umbrella company for every contractor that they send them.

What about that then?

Too many contractors think of their agency as their agents, e.g. like the Mr. Ten Percents in the Acting and Football professions, who look after their clients’ interests.

Nothing could be further from the truth.

‘Your agent’ wants to extract as much money as he, or she, can from you. If they can possibly take half of the rate that is paid by the client for you then they would happily take it without any scruples.

Umbrella Company Preferred Supplier Lists

If your agency demand that you use a particular umbrella company, or an umbrella company on their Preferred Supplier List, you should refuse to do so.

If they tell you that you have to, ask them to put that in writing and see how they react.

It is illegal under the 2010 Bribery Act for agencies to induce contractors to join a particular umbrella company for a fee.

Don’t worry about standing up to them.

Umbrella Company Costs for UK contractors

They won’t dump you. The main fee you get for them is the margin they get on your weekly earnings.

The bung the umbrella company give them is just a bit extra on the side.

They are not going to reject the main course for a little dessert.

Your Favourite Umbrella Companies

Your favourite umbrella companies should pay you weekly and pay you on receipt of your timesheets.

Certainly run a mile from an umbrella company who say “we’ll pay you when we get paid” or make you wait for payment.

Many umbrella companies pay you straight away so use one of them.

Umbrella Company Fees

Before you join an umbrella company, examine the fees they charge and what you get for that.

Don’t necessarily go for the cheapest. Go for the best service at the best price. Look at what they are throwing in.

Umbrella Company Fees and charges for using them

See, if they throw in are any insurances like Professional Indemnity Insurance.

They can purchase these insurances in bulk so they can get them for you more cheaply than if you applied for the insurances yourself.

Tax Deductible Umbrella Company Expenses

One thing that is very important, if they are to be among your favourite umbrella companies, is to find out of they’ll help you to claim expenses as tax-deductible – and what expenses you can claim.

You can more than cover the cost of your umbrella company fees by setting expenses off against tax.

Umbrella Company contractors already pay an average of £10,000 a year more in tax and national insurance contributions than a personal service company contractor does.

Don’t make it even worse by not offsetting your expenses against tax.

Umbrella Company Contractors Who Don’t Claim Expenses

I was astonished to find that between 50% and 60% of umbrella company contractors don’t claim any expenses at all.

That would increase the tax differential between umbrella company contractors and personal service company contractors to perhaps £15,000.

Soon you’ll be talking real money.

Travel and Subsistence Expenses

From April 2016, umbrella company contractors are longer be able to offset travel and subsistence expenses against tax if they are Supervised, Controlled and Directed by their client when working for them.

It would be relatively easy for you to change your contract and working practices to make it so that you aren’t Supervised, Controlled and Directed by the client.

Umbrella Company Comparison for UK contractors

If the client previously gave you a piece of work, told you how long it should take and told you how to do it, supervised you doing it and where you should do it, negotiate a change in the contract and working practice here.

Supervision, Direction and Control

You are an experienced contractor.

Agree the piece of work to be delivered by the client and get the agreement signed off. Do the same with the estimate for the project. Agree that and get the agreement signed off. Agree where it is best done, at your home office or at the client’s site and document that agreement.

You surely don’t need to be supervised in doing the task. When the task is delivered ask your customer to give you a signed acceptance on what you have delivered to them.

If your umbrella company won’t give you advice on how to get these expenses offset against tax after April 2016 it may be because they don’t want you to be Unsupervised, Uncontrolled and Undirected.

They may not want not to change your contract to reflect your new way of working.

Outside IR35

Why, would they not want to do this?

One good reason, from their point of view, is that Supervision, Control and Direction is one of the three major planks of IR35.

The other two major planks are the Right of Supervision and Mutuality of Obligations, i.e. the obligation for them to pay you for turning up and for them to pay you whether there is work for you or not.

IR35 and UK Contractors - Inside or Otsideu

IR35 and UK Contractors and the tax they pay

If you are able to get outside the first plank of IR35, i.e. Supervision, Direction and Control, and you enter a Right of Substitution clause in your contract, then you are only a very short step away from being outside IR35 altogether – and not have to lose all that money each year by being in an umbrella company.

Maybe that’s why many umbrella companies are not too bothered about their contractors not claiming any expenses at all against tax.

Onshore or Offshore Umbrella Companies

Of course, the favourite umbrella companies for contractors could be either onshore ones or offshore umbrella companies.

The average IT Contractor earns £425 a day. That equates to around £100,000 a year once you take out time off.

An onshore PAYE umbrella company contractor would keep somewhere between £60,000 and £65,000 in tax and NI contributions.

Offshore Schemes for UK contractors to save tax

An offshore umbrella company contractor would keep somewhere between 85% and 90%, depending on circumstances, mostly on what they earn.

Umbrella Company Alternatives

So, the offshore umbrella company contractor could be keeping as much as £40,000 more than an onshore umbrella company contractor – particularly one who doesn’t claim any expenses.

Other alternatives to onshore umbrella companies include Tax Efficient Limited Companies for Contractors.

Both return £85% or more to contractors.

Umbrella Company Contractors Options – Will They Now Swap to PSCs?

Posted on December 10, 2015 by admin

umbrella companies dilemma on supervision, direction and control

Umbrella Company Contractors Options

Now that the Chancellor has ruled that umbrella company contractors options can no longer include offsetting travel and subsistence expenses against tax, will they jump ship, en masse, and use personal service companies now?

Umbrella Companies have been disappointed that this has hit them but not those using personal service companies.

However, it could have been much worse for umbrella companies.

Umbrella Company Definition – offshore and onshore

Abolishing Intermediaries

There had been rumours that the Chancellor was going to abolish intermediaries altogether.

He saw intermediaries as umbrella companies and personal service companies.

According to the leaks contractors were going to be on their client’s payroll once they had bene there for a month.

This rumour was changed to being only those contractors who are caught by IR35.

When it came to the Autumn Statement, and the 2016 Finance Bill, there was nothing in it at all about it and umbrella companies were most relieved.

That was an existential threat whereas this may cost them some contractors?

Mass Exodus from Umbrella Companies into PSCs?

Will there now be a mass exodus from umbrella companies into personal service companies?

Will umbrella companies lose all their contractors?

There was already a massive difference in he amount of tax and national insurance contributions paid by personal service company contractors and umbrella company contractors.

£10,000 to £15,000 a Year Difference in Tax

It’s reckoned that there would be a difference of around £10,000 a year for an IT Contractor making the average daily rate of £425 a day.

With limited company contractors still able to claim for travel and subsistence, this could rise to as much as £15,000 a year.

So, surely most of them will jump ship now?

After all, the expenses that they are able to save against tax may well be less than the amount that they now have to pay the umbrella in fees each month basically just to pay them.

Umbrella Company Contractors Options now

Umbrella Company Contractors Options lime Limited Partnerships

Most Don’t Claim Expenses

However, it seems that perhaps the majority of umbrella company contractors don’t even claim any expenses against tax in the first place.

According to giant, around 60% of their contractors don’t claim any expenses at all.

I’d seen figures of more than 50% elsewhere.

Most contractors don’t follow contractor websites.

Those that don’t and who are in umbrella companies and who don’t claim expenses will, therefore, not notice any difference.

They won’t even know what happened.

Staying With Umbrella Company

So, the vast majority of them will continue with their umbrella companies.

You could say that 50% to 60% of contractors are ‘in the bag’ for umbrella companies.

That would leave, 40% to 50% of umbrella company contractors who have been claiming expenses.

This is the vulnerable group for the brollies.

Giant reckon that “most of these are professional contractors who will be able to demonstrate that there is no supervision, direction or control over them and therefore continue to claim travel and subsistence”.

Danger They Might Join Personal Service Companies

There is a danger here, though, for giant and other umbrella companies. If those contractors can prove that they are not supervised, controlled and directed by their client company, then they may well be outside IR35.

Supervision, Direction and Control is one of the three major IR35 factors that point to being inside IR35.

If those contractors can prove they are outside that, some of them may decide to go the whole hog and save another ten grand a year by using a personal service company instead.

That is the danger for umbrella companies.

Umbrella Company Recommendations for UK Contractors

No Existential Threat in 2016

It doesn’t look now, though, as if here is no existential threat to umbrella companies 2016.

Any further changes would be unlikely to take effect till April 2017 now.

So, how many of those 40% to 50% of umbrella company contractors who currently do claim expenses, will go?

Probably not that many will leave.

If they are not now able to claim travel and subsistence expenses against tax because they fail under the supervision, direction and control test, they are almost certainly caught by IR35 and have nowhere else to go anyway.

They cannot operate through personal service companies if that is the case.

Claiming Travel and Subsistence

So, what about those who can still claim travel and subsistence expenses against tax?

Surely, nothing changes for them.

They may well have been outside IR35 before but still chose to use an umbrella company.

Some of those did that because they did not want to take the chance of an IR35 investigation.

Others did that because they didn’t want the admin of running their own company.

So, surely not much will have changed for them.

Keeping Their Contractors

So. it looks as if umbrella companies will keep virtually all of those who didn’t claim expenses.

It will surely keep all of those who are caught by SDC and almost certainly IR35.

It will also keep most of those who can still claim expenses as they are not under SD and C.

The only ones that they might lose are those who might become more aware of the possibility of their being outside IR35 because they have had to pass the SDC test to continue to get their expenses.

Umbrella Company Contractors Options are not limited.

However, it looks as if probably 95% or more of umbrella company contractors will remain with their umbrella companies.

It may be a little harder when it comes to getting new contractors into the umbrella companies but this is a nuisance to umbrella companies rather than being an existential threat.

They will survive!

Umbrella Companies Dilemma over Supervision, Direction and Control

Posted on December 10, 2015 by admin

Umbrella Companies Dilemma

The Chancellor Osborne’s Autumn Statement and 2016 Finance Bill has caused a huge umbrella companies dilemma.

The Chancellor has said that all Umbrella Company contractors will be deemed to be under the Supervision, Control and Direction of their clients – unless it can be proved otherwise.

This would mean that they are no longer able to offset travel and subsistence expenses against tax.

As this is the main expense that umbrella companies can claim for their contractors, it means that their contractors are going to take a huge hit in their pockets.

Umbrella Companies will have to tell contractors this before April and before they notice a huge chunk mission from the money returned to them.

Umbrella Company Expenses explained

Leaving Umbrella Companies or Staying

It will also mean that many of those contractors will have a decision to make, whether to stay with their brolly or to take themselves out of IR35 and use a personal service company.

Some contractors will stay and some will go.

They have to pay upwards of £100 a month to umbrella companies, basically just to pay them.

This was offset by what they would save on an Accountant and even more by what the umbrella company could offset in taxes for them.

What they gained was more than they paid out to the umbrella company.

So, it was worthwhile for them to stay in the umbrella company rather than pay the IR35 tax.

Autumn Statement and Finance Bill

However, that situation has now changed after the Autumn Statement and Finance Bill 2016.

The main expense they could offset against tax was the travel and subsistence expenses.

That will be gone from April 2016.

So, many umbrella company contractors will now be paying the umbrella companies more than they are saving in tax.

The contractors will have a decision to make and so do the umbrella companies.

Umbrella Company News UK Contractors need

Umbrella Company News for UK contractors

Changing the Contract for SDC

However, the brollies will now have a dilemma.

Should the umbrella companies try to take contractors outside the Supervision, Direction and Control of clients?

In terms of the contract this should not be too hard to do.

The contract would say that for any task, or piece of work, the client would have to agree this with the contractor.

They would have to agree the estimate too.

Employers tell permanent workers what to do and how long it should take. Suppliers, with a contract for services, would agree with their customer what should be delivered and when.

Changing Contractors Working Practices

As I said, it would be easy enough to change contracts to reflect this. After all, umbrella companies normally have a cosy relationship with agencies who supply them with contractors.

Providing the client is reasonable, and most are, they would be happy to change the contractor’s working practice to match the contract.

Both parties would agree the piece of work, as would the estimate. The contractor would complete the task unsupervised, using his, or her, own knowledge and experience.

Of course, they are taking a bit of a risk. If they got it wrong they could get hit for the missing tax.

However, theres is no reason to get it wrong,

It’s fairly simple. The contract HAS changed. The relationship between the contractor and the client HAS changed to a customer / supplier relationship in terms of agreeing what has to be delivered and the time it should take.

So, it is not fraudulent. It is just a fact – a change way of working.

Working through Umbrella Companies for maximum returns

Umbrella Company Options and Choice

So, here’s the umbrella companies dilemma.

Here is their Catch-22.

If they do help the contractor to be unsupervised, working without direction and uncontrolled by the client, this would get the contractor his travel and subsistence expenses back again.

That might save him, or her, £5,000 a year.

It might make it more worthwhile to stay with the umbrella company.

Contractor Now Outside IR35

However, it would also take him, or her, closer to being outside of IR35.

This would mean that he, or she, could now work through a personal service company.

Personal service company contractors pay an average of £10,000 a year less in tax than an umbrella company contractor.

There are three main IR35 factors which point to you being caught by IR35 or outside it.

Major IR35 Factors

They are:-

1 Supervision, Direction and Control

2 The Right of Substitution

3 Mutuality of Obligation

IR35 and UK Contractors and the tax they pay

Right of Substitution Contract Clause

We know, from a previous court case, that you can easily insert the right of substitution into your contract and a named substitute and that the burden of proof is with HMRC to prove that it was a sham.

They could only do that if the client triggered the substitute clause and the substitute failed to show up. That court verdict must have had HMRC gnashing their teeth.

So, of the three main pointers to IR35, putting a right of substitution clause that will never be triggered into your contract would allow you to tick that box.

The umbrella company has just helped the contractor to be outside the Supervision, Direction and Control IR35 factor.

So, the contractor is able to tick off two of the three main IR35 boxes.

Keeping More of a Contractor’s Income

He, or she, would naturally think “Maybe I can get outside IR35 and set up a personal service company so that I could save not just the £5,000 for travel and subsistence but also another £10,000 a year on top of that”.

So, that is the umbrella companies dilemma.

Should they arrange with the agencies and clients to change the contracts fo some of their contractors to take them outside the Supervision, Direction and Control clause?

This would mean that they could still claim their travel and subsistence expenses which might come to more than the monthly fee that the contractor pays to the umbrella company?

Intermediaries Rules for Contractors over IR35

Big Question for Contractor Umbrella Companies

The big question for them is this:-

Will getting contractors outside Supervision, Direction and Control of the client be more likely to get umbrella companies contractors to stay with them or be more likely to show them how it is done and make it easier for them to leave the umbrella and set up a personal service company.

That’s the 64 million dollar question for umbrella companies.

They are going to have to decide, before April, whether they are going to open that box or keep it shut.

They are going to have to decide whether to twist or stick.

That is the umbrella companies dilemma and they need an answer to it well before April.

So, what will they do?

I’m absolutely certain which option they will take – but that is for another article.

Umbrella Company Alternatives

If they don’t answer it correctly, contractors could jump ship to Limited Companies or Offshore Umbrella Companies.

Tax Efficient Limited Partnerships for UK contractors