An Umbrella company, called Legal-e... Is it legal?

[Jasonoughts]

HI

 

I posted this on the Tax, Minimum wage thread and HB suggested I post here :- An Umbrella company, called Legal-e... Is it legal?

Hi,

 

I have just started work for a new agency in Leeds and there payroll department is paying me through an umbrella company.

 

I had to fill out an expenses form, which included my daily petrol and food costs. This totaled £87.19....

 

I will cut and paste the explanation of how their system works, and show you my payslip.... could someone please explain why I am paying so little tax, NI etc. And if it is Legal?

 

Here is there explanation :-

 

 

First of all, we are an umbrella company and we pay temporary workers on behalf of their recruitment agencies.

As an umbrella company we are able to claim expenses on behalf of temporary workers and offset these against their gross pay in order to reduce their tax and NI payments. Please note that the expenses part on your payslip becomes a non-taxable part of your gross and these are not directly reimbursed to the temporary worker. Only tax saving made on this part of wage being protected from being taxed will get added to the net pay to increase it .These expenses include travel to and from work, a food allowance and other expenses incurred due to the nature of temporary work.* Your meal allowances are based on your hours worked each week.* Any other additional expense incurred by you to carry out your role may be taken into consideration, however, please check with the Customer Service team at Legal-e who will advise you accordingly as you will be required to keep receipts for these.

 

The purpose of an umbrella company is to allow the worker to come home with a higher weekly wage than the standard PAYE system. From the savings made in the tax and NI payments Legal-E put some of this money back into the workers pay to make them better off.

 

 

* Only temporary workers can take advantage of this scheme as permanent employees are not allowed to receive additional tax free allowance in the form of expenses. This means that through Legal-E you are not taxed on your whole gross salary, instead you are taxed on only your taxable income and because of this we must lay out your pay slip in a particular way. To calculate your net pay you will need to look at your taxable amount only deduct NI and tax, then add your expenses equals your net pay.

 

 

 

You can easily check how much better off you are each week from questioned dates by using

Just enter your weekly gross, insert in Gross Income Every 52 weeks, and tick 1 week in Wage Breakdown, enter your correct tax code and calculate.



 

It is not PAYE system so the rules of this system do not apply here.

When it comes to the final figure on the P60 –it sums up all the taxable earnings and not a gross figure as the gross has still got expenses un-deducted from it as they are tax free.

 

 

Here is the payslip break down :-

 

 

Hours = 40.25

Rate = 6.50

Amount = 261.63

 

DEDUCTIONS

 

Tax = 0.25

Employee's Ni = 0.72

 

 

BREAKDOWN

 

Gross pay = 261.62

salary Gross = 261.62

Taxable = 145.00

 

Less

 

Tax = 0.25

NI = 0.72

 

add EXPENSES = 87.19

 

NON-Taxable = 116.61

less

holiday Accrual = 29.42

 

 

NET PAY = 231.22

 

Hope the payslip details make sense, I could not cut and paste the PDF document, but have typed all relevant details...

 

Hope you can shed some light on this.. I am better off, but need to know if I will owe the tax man?

 

Many Thanks

[rubylee]

Hi they are legal , you find all agencey works get paid via them

 

Regards Ruby.

[speedfreek]

Yes Umbrella Companies are legal but their expenses regime may not be.

 

http://www.contractoruk.com/umbrella_companies/

 

Have a read there for a basic guide

[andydd]

Hi there. When you are self employed..either directly yourself or via an agency then you must be law be paid via a Limited Compnay, your options are, to set one upyourself or get paid through another (i used to get paid via myu brothers), or a simple option is to use an umbrella company.If you get paid via your own Ltd Company you must do all the tax stuff yourself (or hire an accountant), the umbrela option is quite easy as they do all the hard work for you (but you will of course pay them a small fee), yes you will pay less NI than a normal; PAYE job, I believe the tax rate you will pay will be the same BUT you are allowed to offset certain expenses against tax, so the end result is you pay less, how much you can actually offset is a bit of a grey area and there is a law in place (whose name escapes me now) to stop you doing it permanently, (i.e you cant work a full time job for 10 years but pretend its a temp contract job and get the NI/less tax benefits).The umbrella company sounds fine and legal although I would of thought that `they would give you the option to use it or not.Andy

[sir_gilmour]

Hi

Welcome to The Consumer Action Group.

 

 

I am just letting you know that as you haven't had any replies to your post yet, it might be better if you post your message again in an appropriate sub-forum. You will get lots of help there.

 

Also take some time to read around the forum and get used to the layout. It is a big forum and takes a lot of getting used to.

 

 

Once you start to find your way, you will soon realise that it is fairly easy to get round and to get the help you need.

 

It can be bit confusing at first.

[hookster]

Hi People,

 

A quick question.

 

I work for an recruitment company which is based in Bradford. They are my employer and pay my wages and obviously take a cut of my wages each week. I live in Leeds and have a round trip of 32 miles to "Morrison's" in a Village called Flaxby ,where I work as a Fork lift truck driver.

 

I am currently paying a £40 minimum in petrol a week, and have kept petrol receipts for the last 4 months.

 

My question is, Can I reclaim expenses from the agency ( my employer ) or the government? Sorry if this question has been asked before, as I am new around these parts.

 

Many Thanks.

 

further to all the other learned replies i would like to add.

 

what does it say in your contract ?? most likely you are working under a terms of engagement,and are not an employee... for tax purposes you are certainly not an employee,though the agency MUST deduct paye...and your contract will expressly have to say if you can claim anything from the agency...which i very very much doubt. yes, you can try and go self-employed...but in the main, an agency wont entertain you as this has a knock-on affect to their terms and conditions with the client..and going directly to the company re self-employed at morrisons ?...not going to happen either, they need the numbers and flexibility that an agency provides..

you are no worse off than a regular employee, so chin up !

[geordie boy1960]

Hi,

This form of employment is perfectly legal, I have used this one and others over the years. Basically you are allowed certain benefits off the tax man which include £6.00 per day food allowance, if you work from home for more than 8 hours, and £12.00 if you work longer than that. Transport allowances are paid at receipt balance or £0.40p per mile if you use your car, (you are not alowed to claim for tyres, mechanical work etc as this has been calculated by hmrc as part of the 40p) road tunnel and parking fees are included. (each way) every day as long as you dont work at the same place for more than two years, then it drops to 20p per mile thereafter as it does if you claim more than 20,000 miles per year. On top of that you can claim for any expenses that are work related, i.e. clothing, tools etc.

The umbrella company will charge you either a percentage of your earnings or flat rate, which will be printed in there booklet. Most times it is impossible to tell exactly what you are recieving as they have weird and wonderful ways of working it out, although you should be able to come to a figure that is close to what they are paying you, If you think they are deducting too much then challenge them. if you do not get a satisfactory answer then change the umbrellar company. This is YOUR right so dont let the agency tell you otherwise. (just like elsewhere there are rip off merchants out there)

There are sites on the web that can help explain including HMRC. but it can get confusing at times.

 

Hope this helps.

[MaxxPower]

The limit on claiming tax expenses is 2 years at the same location I believe. The second you sign a contract that will take you past the 2 year mark, you have to stop claiming, even if you haven't actually reached the 2 years yet. Of course if you change location, even still working for the same company doing the same job, the 2 years resets I believe, though there may be a minimum distance for the location change.

I've just come off contracting myself (finally) and to be honest was glad to see the back of it. I hated having to pay nearly £100/month to an umbrella company, plus pay the Employers NI Contributions (since I was technically my own employer).

Just be sure to keep all receipts for anything you're claiming for (IE only send copies of your petrol and food receipts if asked for them and keep the originals yourself) as if HMRC decide to inspect you (which they can) then you'll need to produce these receipts on demand. If you can't, you could find yourself with a big tax bill. It's for this reason you need to make sure the Umbrella company are deducting the correct amounts. Remember, that daily food allowance is an UP TO amount. If you spend less than that on food, you can only claim what you actually spend.

 

The transport allowance has also gone up to 45p/mile now for cars I believe, but only for the first 10,000 miles.

 

You can also claim for anything else that is necessary for work. IE if you work with computers you can claim the expense of an eye test against tax. If you're a tradesman you can claim the cost of tools you purchase yourself for work against tax, etc etc.

[Prouty99]

A quick one on this,

 

I was with an umbrella company last year, and i only realised after a while that they kept receipts for my mileage for the year and i had to fill in a P87 at the end of the year to get it back which took ages, and resulted in my tax code being vastly increased for this year (damn i really wanted a cheque). What i didn't realise was that the reason for this was that the company (unknown to me) had lost its mandate from HMRC to do these things for me.

 

It would have been nice of them to keep me in the loop, i would have switched sooner.

 

I have now switched to a great umbrella called paysure and they deduct & reimburse my expenses week by week, increasing my weekly take home pay by leaps and bounds, and they charge a lot less per month. That £100 a month i saw further up the board seems extreme to me. I'm pretty sure i don't get charged so much.

[MaxxPower]

£100 was quite a bit, but I was very restricted in what Umbrella company I could choose as the agency I was working through would only allow the use of Umbrella companies from a very small list. Naturally these were basically companies paying a fee to the agency and it gave them free reign to bump up the costs accordingly.

[transient]

http://blogs.mirror.co.uk/investigations/2011/08/we-put-legal-es-tax-dodge-for.html

http://blogs.mirror.co.uk/investigations/2011/12/does-legal-es-expenses-scheme.html

[Emmzzi]

Hi there. When you are self employed..either directly yourself or via an agency then you must be law be paid via a Limited Compnay,

 

 

I've worked self employed as an individual, not a limited company, no problem, just sent the taxman a cheque after year end.

 

Some agencies will only use you if you are a limited company as it makes their life easier. Which is not the same as "you must by law."

[andydd]

I was under the impression that the law did require it but not 100% sure, this page has a good run-down on self employment and IR35 but it still confuses me.!

 

http://www.freelanceadvisor.co.uk/go-freelance-guide/your-legal-status-and-ir35/

 

Andy

[stinkysrevenge]

If you are self-employed and contracting, it's not "by law" that you must be limited company or use an umbrella company. These 2 are just the most common ways of working (via contract), and agencies generally prefer these over being a sole trader or PAYE through the agency as a) PAYE through them is more work for them and b) ltd's or umbrellas are seen as a more financially reliable set up (professionally speaking). There are pros and cons to both, ie through umbrella you don't have to worry about legislation called IR35 or insurance or dealing with your own accounts as you are technically an employee of the umbrella company and if you have your own limited company, you will have to handle all aspects of your business including set up, accounts, insurance, self assessment, VAT (if applicable), etc etc. (I work through my own limited company)

 

As far as expenses go, for an umbrella, you can offset things like mileage and certain other expenses against your gross taxable income. Limited companies can expense a bit more than umbrellas. The 2 year rule does apply to both umbrella and ltd's, and it's from the time you know you will be at a certain client for more than 2 years. For example, if you have worked 3x6 month contracts and are offered another 6 months, from the day you sign the 4th 6 month contract, you can no longer claim expenses on mileage. Also, the fee your umbrella company charges is also considered expenses as well.

 

@MaxxPower: £100 per month for an umbrella?? Rip off! Before I had my own limted company, I was paying £40 per month (and I only starting my ltd in April) and I begrudged paying that to be honest (I am a bit cheap! haha)

 

Definitely shop around for an umbrella, try http://www.contractorsupermarket.info/ . An agency cannot force you to use a certain umbrella company, and if they tell you they can, they are talking [edited to rubbish]. 9 times out of 10 the agency gets a kick back from the umbrella for pushing people in their direction.

Edited July 16, 2012 by honeybee13
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