Points to consider
It is important before signing any agreement with an umbrella company that you make the necessary background checks.
There are many new umbrella companies in the market place that are offering returns on your payments as high as 85% and 90% of your gross. HMRC state that if it ‘sounds too good to be true, then it probably is’.
Holt Doctors cannot comment on the compliance of individual umbrella companies but ask that you undertake due diligence before entering in to any agreements as the penalties can be severe.
HMRC have published several guidance pieces on what to look out for in relation to ‘disguised remuneration tax avoidance schemes' particularly aimed at contractors. More information can be found on the HMRC website – some useful links are listed below:
- How to identify tax avoidance schemes – HMRC
- Contractor tax: loan schemes can cost you more – HMRC (Spotlight 33)
- Disguised remuneration tax avoidance using annuities – HMRC (Spotlight 35)
- Disguised remuneration job board avoidance scheme – HMRC (Spotlight 37)?
- Disguised remuneration re-describing loans – HMRC (Spotlight 39)
General information on umbrella companies:
What is an umbrella company?
Umbrella companies offer a one stop payroll service, so although you may work through more than one agency and also at a number of different Trusts who pay you direct, you only have one point of contact for payment and any queries arising from your payroll.
How does an umbrella company work?
The umbrella company is your employer; hence your tax allowance is held by one employer, and you have one P60 from the umbrella at the tax year end that will cover all of your locum work.
The umbrella company will report to HMRC via the RTI system for all the taxes you have had deducted from your gross payment. Unlike a PSC you will not need to prepare accounts and there is no corporation tax to declare.
There will be an agreement between yourself and the umbrella company that will be an “agreement of services” and will detail your options/terms as the employee of the umbrella company, including what they will charge you for their services and payment frequency etc.
Over the last two years HMRC has reduced the expenses allowance that an umbrella company can utilise against your payments, so in turn reducing (in some ways) the viability of umbrella companies. However, in the majority of cases, this has given rise to a more competitive charge rate to you for their services.
Some Trusts won’t accept locums paid via umbrella schemes
As the umbrella company will be VAT registered this could exclude you from working at some Trusts that have elected to operate a direct engagement model – as the cost to the Trust will include VAT and, as the Trust cannot recoup this tax from HMRC, you may not be as economical to the Trust as another equally experienced doctor. 44
Payments made via umbrella companies by Holt Doctors
As an agency, Holt Doctors work with numerous umbrella companies and we pay them in the same time scale as we would pay you through PAYE or limited company (twice weekly) but we have no control over the payment frequency of the umbrella company to you.
We will carry out a short check on the umbrella company to ensure they have a UK registered office and bank account plus adequate employer’s liability insurance etc.
Once the umbrella company is active, you will continue to submit your timesheets to Holt Doctors in the same manner as instructed by our team and we will raise the self bill that is then emailed to the umbrella company.
The information contained in this is correct at the time of writing but this article is not maintained.