Umbrella company avoiding National Insurance
If my Umbrella company reduces my salary and increases my expenses to avoid National Insurance am I at risk?
If this is something that your Umbrella company is doing there is definitely a possible risk. If any expenses listed fall outside HMRC rules on what is allowable as a legitimate business expense you will be personally liable for any unpaid tax owed. Even though you are an employee of the Umbrella you are still personally responsible for your tax, so it will be you who will have to pay any additional tax due. This is true even though the expense calculations have been done by your Umbrella company on your behalf. These amounts can also be chased by HMRC in later years. So, if the expenses portion of your salary looks un-naturally high, it is serious cause for concern.
Many Umbrella companies have been granted what is known as ‘dispensation’ by HMRC. A dispensation allows an Umbrella to apply standardised amounts to specific expense items eg: £21 per day for subsistence. The Umbrella will then apply these expense items and set scale amounts to your net pay calculation. Under the dispensation the Umbrella does not have to supply receipts for these either, which makes administration easier for them. Do remember this is not a “blank cheque”, as a general rule you do need to be aware of claiming only what you spend, and ensure you only claim the subsistence amount when you’ve actually spent something. However, it is in your interests to keep complete records of your own, as receipts would be required in the event of an HMRC inspection. Some Umbrella companies have unfortunately pushed the limits of their discretion under their dispensation agreement a little too far. This pushing of boundaries is where problems in this area start.
What can I do about it? Does the Umbrella company have to tell me if they are being aggressive or downright dodgy?
The Umbrella company has an obligation to explain to you all amounts appearing on your payslip. Ideally it should be able to explain the basis of your expenses calculation and also be able to reference the relevant HMRC guidance. Some companies supply online pay calculators, but be aware that these are only as accurate as the information supplied. Some only ask for basic information which may not produce an accurate figure. The simplest pay calculators are often based on averages and can be used only as a guide.
If your Umbrella company is not supplying satisfactory answers to your queries the best course of action is to contact another independent adviser and get answers to your questions. They can also review your overall circumstances and confirm if using an Umbrella remains your best option. This way you are protecting your interests by nipping potential problems in the bud.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.