All umbrella companies should return similar take home pay as they should all follow the same tax rules. Contractors still seem to be chasing the high returns with the false assurances of compliance.
We would like to highlight that no Professional Passport approved provider should be offering higher than expected returns. If any approved provider suggests a higher rate of return please obtain evidence of this and immediately send it through to us using this form. This would include introducing you to another company offering higher than normal returns.
The simple fact is that the schemes that offer high rates of take-home pay rarely work and rely on the low level of enforcement activity carried out by HMRC. This lack of enforcement allows many of these providers to create a perception of presumed compliance as they may have been offering the arrangements for some time. They often use this as a way of convincing a contractor that the arrangements must be ok, or action would have been taken.
There may also be assurances of a barrister’s opinion signing off the arrangements, developing the perceived compliance perception further. Contractors should be aware that these claims offer no defence to HMRC and any unpaid taxes will still be payable. It does offer a defence to the directors of such arrangements against contractors attempting to sue for losses which may explain why they seek the opinion in the first place.
When comparing umbrella companies, the only factor that will change your take home pay is their margin deduction, lower margin means slightly higher take-home. This differential in margin will usually only result in a few pence difference in take-home pay. So if you are offered higher take-home pay and the margin seems to be higher the this should be taken as a clear sign that something is not quite as it seems.
The appeal of higher take-home pay can be great but as many contractors have found it can result in a final position that is very much worse if subjected to an HMRC enquiry.
Almost all schemes have an element of PAYE pay to them, this is often used to give an air of acceptability and compliance. As PAYE is reported directly to HMRC using real time reporting once a ‘scheme’ is uncovered by HMRC they have the full list of every worker that used the arrangements. So, it is not really a case of ‘if’ you get caught but ‘when’.
HMRC are seeking to step up their compliance activity in this area.
The adage of ‘if it seems to be to good to be true it probably is’ holds true.
We would also suggest that all contractors sign up for their Personal tax account with HMRC. Having this allows you to check that the income and tax being reported to you by a provider is the same as they are reporting to HMRC. If you find any differences you should raise the concerns immediately with the provider and HMRC if you still feel concerned.
For further information you can also view the Factsheet produced by PRISM and The Low Incomes Tax Reform Group.