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Anyone working at an umbrella company would tell you that September and October have been rather busy months for us as an industry. The Agency Workers Regulations (as they are now called) have kicked in, and the volume of changes that everyone has had to make are really quite impressive. I don't think umbrella companies have faced such significant changes since the MSC legislation came in back in 2007.

The Managed Service Company legislation forced a complete re-design of the company from the ground up, and still forces us to do things in some very strange ways to remain compliant. The Agency Workers Regulations (or AWR as they are rapidly becoming known) has been less taxing to the company as a whole, but it's sheer complexity has kept directors, tax advisors and lawyers up at night. Now everyone has a handle on things it's just a matter of putting plans in place and Bob's your uncle.

So what have all these changes got us? Well we've all learned a whole lot more about rights in the workplace, holiday pay, HR compliance and what derogated means or even what Swedish Derogation is, we've got a lot more contact with the agencies (who I'm sure would much rather be working on finding and filling places and who can blame them?).

The last couple of months hasn't all been stress and hard work though, there have been a couple of very pleasing things to come about. The first is that we were picked as one of the Telegraph 1000 'A celebration of the 1,000 mid-sized companies which have weathered the economic storm and are set to be the foundation of the recovery.' which was a nice surprise. Only one other umbrella company made the list and they've been around as long as we have so it's nice club to be in.

The second piece of good news is that we've had 5 employees join us full time, 3 new people joining the company, and 2 people from the early days of Gabem rejoin in new roles, it's great to have them back and watch the company continue to grow.

Hugo
@GabemUmbrella
19/10/2011

As you may or may not know we accept application forms and ID (for British citizens using our umbrella company) in a variety of ways, and one of those ways is scanned copies. This is nice and convenient, but does occasionally run aground on one tiny problem, file sizes.

Scanners are one of those peripherals that many people have tucked away but rarely use, so it's easy to see how it might be easiest to just click scan and trust that the factory settings are correct. The problem is that most scanners are anticipating a photo and this leads to some extremely large file sizes.

Our email system is rigged to accept an email up to around 10 Megabytes for a single email, which in modern internet terms is relatively minor, but in email terms remains fairly ridiculous. To give you a little perspective on other things that would each take up 10Mb:

• One and a half copies of the complete King James Bible
• Two copies of War and Peace
• Two copies of the Lord of the Rings (all 3 books so 6 books in total)

A 10Mb picture may paint a thousand words, but emailing it takes up over a million.

We regularly have people emailing 11Mb pictures of their passports, and because of our 10Mb limit they unfortunately never arrive.

So what's the solution?

Well we ran some tests on scan quality and file size and came up with this as our ideal scanning settings:

A black and white image scanned from colour
With a resolution of 300 dpi (dots per inch)

This gave us a nice clear image and kept the file size to a respectable 111Kb. (circled in blue in the picture)

If we were simply to make it a colour image the file size climbs to a rather daunting 11.3Mb over 100 times larger than the black and white version (circled in red).

So what does that mean for you?

Well the great thing about the settings above are that they are actually pretty standard for scanners when you switch to scanning in black and white, so hopefully all you will have to worry about is making that one change, and your application or ID should come through nice and quickly.

Hugo
@GabemUmbrella
17/08/2011

One of the things I talked about last time were the changes to PAYE taxation that being introduced. What I didn't spend much time talking about were the new tax codes. Tax codes are something any employee has to be familiar with regardless of whether they work though an umbrella company or not. Every year there are "new" ones, this years new "standard" tax code is 747L (last years was 647L), but this year brings us an actual new tax code. The tax code in question is the 0T tax code.

We hear a lot of talk about what is often referred to as "emergency tax" which has traditionally been the BR week 1 tax code which applied a 20% tax to all your earnings regardless of any allowances. 0T takes this one step further and rather than apply a flat rate of tax applies each band of tax all the way up to the 50% band whilst also applying no allowances, making anyone on it potentially even worse off.

One of the key times it will be used (and this is of particular importance to people switching to umbrella companies) is if you don't have an actionable P45 and you don't fill out a P46 instead, when you change employers. So if your previous employer, whether they are an umbrella company or not doesn't issue you a P45 (and they really should), it is now more important than ever that you fill out a P46 so that you avoid the 0T tax code.

I realise I've made that all seem quite intimidating, but for the majority of you this is going to have next to no impact at all. It will mainly effect people changing employers (so people switching between umbrella companies or between agents and umbrella companies), and is actually fairly simple to avoid if that is the case, just fill out a P45 or a P46. It's just one more piece of paperwork you need to be on top of.

Hugo
@GabemUmbrella
19/04/2011

Anyone who's had to do any driving for work over the last year or so will be very aware of the ever widening gulf between the 40p per mile mileage allowance and the 133p per litre cost of petrol.

So it's good to see the budget making at least a token effort by increasing the per mile allowance to 45p. Obviously we'd prefer it to be higher (back when I started if your car had an engine size over 2 litres it was 63p, those were the days), but I suppose that we all have to do our bit to help the economy.

In other good mileage expense news, those of you working through umbrella companies will all be pleased to hear that your yearly mileage totals will be resetting on April 6th. So if you exceeded 10,000 miles and had dropped to the lower 20p per mile rate, any mileage you do from then will be back starting fresh on the new 45p rate.

There are two other pieces of significant budget news, but it's an even split between good and bad news. The good news is that tax free allowances have increased once again (up to £7475 for those on a 747L tax code), which is great. But the bad news is that the national insurance payments for both employers and employees have increased by 1% each for all of us.

So what's the net result? The majority of us will be slightly better off than last year, but even if you're effected negatively by the NI increases, you may still end up better off because of the mileage expense changes, just make sure you are actually claiming.

Hugo
@GabemUmbrella
01/04/2011

Travel Expenses/Salary Sacrifice Scheme illegal for workers paid at or near the National Minimum Wage (NMW) from 1st January 2011

Travel expenses allowable as deductions from earnings can no longer be used to increase NMW pay for the purpose of meeting the statutory NMW for workers paid at the NMW threshold with effect from 1 January 2011.

The is in line with an amendment to The National Minimum Wage (Amendment) (No.2) Regulations 2010 arising from HMRC’s response to the consultation held earlier in the year into travel and subsistence expenses schemes.

Travel and subsistence expenses/salary sacrifice schemes operated by some umbrella companies and employment businesses requires contract workers to agree that an amount of pay, which would otherwise be subject to tax and NICs, be replaced with payment of expenses for travel to a temporary workplace. Workers paid at or near the NMW may participate in these schemes because current NMW legislation contains a loophole under which travel and subsistence expenses payment count towards calculating pay for the purposes of NMW.

In Gabem’s view the reduction in pay for tax and NICs purposes in return for the payment of travel expenses could adversely impact on workers paid at the NMW access to earnings-related contributory benefits. When such workers come nearer to retirement they may have to 'top up' their social security contributions (NIC) if they are below the threshold HMRC require to pay out state pension.

Gabem does not and never has run a Travel Expenses/Salary Sacrifice Scheme for our umbrella company operatives. The change brought about by The National Minimum Wage (Amendment) (No.2) Regulations 2010 will therefore not cause a change in our operations as we are already fully compliant with the new legislation.

NEXT STEP

Umbrella companies and employment businesses that currently operate salary sacrifice scheme for workers paid at the NMW threshold should change their calculation and communicate with NMW workers about the change in legislation. If they continue to use expenses against NMW after 31st December 2010 they could be in breach of the new legislation and their NMW workers should look at moving to another provider.

Please email us, if you want to discuss the changes in more detail.

24/12/2010

It's been quite a while since my last post and for that I apologise, I realise this might seem a lame excuse but things here have been really hectic lately and the blog was one of the things that had to suffer.

Busyness has become a bit of a company wide phenomenon, and while you probably wouldn't have realised outside my absence it's reached the point where we've taking on a couple more people in our Operations Team. A long long time ago (the point at which I started in the company) when we were running composite companies rather than umbrella companies we left taking on staff too late and damaged our service, we learnt our lesson. So you'll be hearing some new voices in the very near future, and while they aren't new to this sort of thing they are new to Gabem and umbrella companies in general, so bare with them while they learn the ropes.

So what's been keeping me away from the blog? Well I haven't been manning the phones, I think the mere thought of that might send Trudy into a panic. To say I'm out of practice doesn't really go far enough.

There have been a lot of internal IT projects, some of which suddenly needed more attention and a lot planning for the future. There have been a number of recent legislation changes that any respectable umbrella company has to take a serious look at to ensure that they will be doing the right thing in future. One prime example is the pension auto enrolment that was recently announced.

As you are (hopefully) aware we've always had a pension scheme open to our umbrella company employees (I believe we were one of the first in the business to offer it), but the planned changes are substantial, and depending on how we plan now could turn out to be quite beneficial in the long run. It could be very interesting to see how this changes the umbrella company landscape over the next few years.

Have a great week, and hopefully speak to you soon.

Hugo
@GabemUmbrella
17/11/2010

The deadline for the PAYE review has been and gone, and although it's not specifically umbrella company news, part of what it describes could affect umbrella companies and contractors by a huge degree.

The first part of the review is actually quite reasonable and could possibly be applauded so long as their "Real-time information" was actually that and a two way street. The proposal as it stands is to use the BACS system, which is a strange choice because BACS isn’t really real-time, and might add the famous 3 days to when data is received. A lot of our umbrella company employees are paid weekly, and I know from speaking to many of them over the years that payments cannot afford to be late (it's part of the reason we still maintain a fairly easy and streamlined process for paying advances).

So BACS would have to go, to be replaced by a beefed up government gateway or nothing, it's as simple as that. I think most companies are right behind the idea that sending submissions and documents electronically to HMRC is the way forwards so we're happy to send our information over but we need a response at the same speed.

The second part of the review is probably the now famous\infamous "Centralised Deductions" which is where HMRC would take over the actual payroll functions of the employer. This of course holds extra horror for umbrella companies, but it would create problems for employees everywhere (not least for all the unemployed payroll people). Payroll departments aren't just there to mechanically process payments, they are there as both a sanity check of the final calculations and they help they people they are payrolling. Who would you call if you weren't paid?

It's extremely unlikely that "Centralised Deductions" will make it through the review, so it's probably safe to say we can all breathe a sigh of relief.

Modernisation in the public sector is always to be applauded but there is such a thing as biting off more than you can chew, and I think that's what's happened here.

Have a great weekend folks, and sorry for the lack of updates until now.

Hugo
@GabemUmbrella
24/09/2010

The government recently published it’s response to consultation held earlier in the year into National Minimum Wage workers: Travel and subsistence expenses schemes.

Travel and subsistence expenses schemes operated by some employment businesses and umbrella companies requires temporary employees to agree that an amount of pay, which would otherwise be subject to tax and NICs, be replaced with expenses payments for travel to a temporary workplace. In this way, these schemes appear to deliver tax and NIC savings for the temporary employees. Also, employment businesses or umbrella companies save employer’s NICs on the pay which has been replaced with tax and NIC-free travel expenses. Workers paid at or near the NMW may participate in these schemes because, under current NMW legislation, travel and subsistence expenses payment count towards calculating pay for the purposes of NMW.

In the opinion of HM Treasury, which Gabem Management Limited aligns with, travel and subsistence expenses scheme (otherwise commonly considered as salary sacrifice) is not absolutely beneficial, as it appears to be, to an employee paid at the NMW threshold. HM Treasury, therefore, in February 2010, published consultation document which identified how the reduction in pay for tax and NICs purposes in return for the payment of travel expenses can adversely impact on NMW workers’ access to earnings-related contributory benefits. The document also identified how the operation of the scheme results into the employer keeping most of the tax and NIC from the salary sacrifice to the detriment of employees who are left with marginal tax exempt travel and subsistence expenses just enough to comply with the NMW.

Salary sacrifice is possible because under current NMW legislation, travel and subsistence expenses, which are allowable for tax and NICs purposes, count towards NMW pay. The consultation document therefore proposed an amendment to the NMW legislation such that that travel and subsistence expenses, which are allowable for tax and NICs purposes, do not count towards NMW pay.

At the end of the consultation period, HM Treasury decided to propose an amendment to the NMW Regulations such that subsistence and accommodation expenses allowable as deductions from earnings can no longer be used to increase pay for the purpose of meeting the statutory NMW. The proposed amendment will take effect from 1 January 2011.

As Gabem does not offer salary sacrifice scheme, the proposed change in NMW legislation will not cause a change in our operations.

Gabem welcomes this HM Treasury’s measure as salary sacrifice is not only exploitative of low-paid workers but also unconscionable as most employees paid at NMW threshold hardly realise the full import of what they are signing into under the salary sacrifice scheme.

Wole
@GabemUmbrella
20/08/2010

I was reading today about someone in the US who outsourced their hunt for a new apartment and it got me wondering if this was something contractors (whether self-employed or working through umbrella companies) might find beneficial.

Okay there have been plenty of jokes over the years about "personal outsourcing" (the most famous of which is The Onion's "More American Workers Outsourcing Own Jobs Overseas" video), but the internet could be making it more of a reality than ever. I'm not talking really about the carrying out of any of your actual work, more the administration side, the parts you can't automate or pass over to umbrella companies like ourselves?

Job hunting is the most obvious area you could save time, hire someone to trawl the jobs boards for you, trimming out the duplicates and emailing the details to you each day? As a contractor you probably know better than most exactly what your time is worth, and you could be spending it by working longer, or spending time with your family. You could even have someone looking for your next contract while you're working on your current one.

You could do it with virtually any time intensive basic administration, maybe even looking for tools or equipment, just make sure you're the one who makes the final decision.

I'm just waiting for the day I can easily justify outsourcing remembering anniversaries and gift buying.

Hugo
@GabemUmbrella
15/07/2010

With rumours abounding of an umbrella company having lost it's CIS gross status, it got me to thinking back to when we had to make do without our CIS5 card (the old gross status) back in 2006.

It wasn't for very long mind, when the new CIS revisions came in in 2007 we were first in line and got it without any trouble [Gabem wins back CIS 'Gross' payment status], but the time in between was a real challenge. Not in financial terms, because we've always been careful when it comes to money, but in terms of loss of client faith and the increased administration demands it was a serious blow. It's also just embarrassing.

I remember having to explain it to my agency contacts and that was a bad day. I was in invoicing at the time and the figure 0.995 is indelibly etched in my memory because if you had a contractor's gross figure, you could multiply that by 0.995 and it would give you the payment you should be expecting in the bank (less the 18% CIS tax and plus the 17.5% VAT on the original gross amount). It wasn't always that easy of course sometimes payment would come in randomly missing the VAT or randomly including the CIS or both. It was just a case of thinking quicker on your feet.

If it's not just rumour and the umbrella company in question has actually lost their gross status they sincerely have my sympathy. It is going to have radical repercussions on the way they do business, and they are going to have to learn to react quickly to this new (unpleasant) reality. The sooner you can get back to running things smoothly the better, for you and your customers. Take it from someone that went through it

It's not all bad though, if you get through it (and that is the tricky bit), as a company and as an individual you'll come out smarter and stronger than you were before. You'll be much better able to cope with whatever the contracting industry throws at you; whether it's changes in circumstances, dealing with HMRC (whom I believe we now have a working relationship that I think we can be proud of [Gabem Wins HMRC Expenses Dispensation]) or coping with sudden changes in legislation.

Just get through it and you'll see.

Best of luck to you.

Hugo
@GabemUmbrella
14/07/2010

I've been looking at how people get to our site recently and, despite the fact that we (and the majority of our competitors) started running umbrella companies back in 2007, we still get several people a week arriving at our site after searching for composite companies.

Composite companies were the ancient forebearers of umbrella companies and went the way of the dodo even before the tackling managed service companies legislation came in. I did write a history of composite companies a while back just so people had some/more background to how umbrella companies became what they are but I'm amazed that it gets read with such frequency.

On this note, if anyone is researching composite companies academically (for whatever reason) feel free to get in touch as we have plenty of people here who remember them and would be happy to reminisce.

If alternatively you just want work related advice in general you can either click 'Hugo' below to submit your question.....or indeed if you would rather the feminine touch why not visit Susan at her legal bits. We are of course here to help.

Hugo
@GabemUmbrella
13/07/2010

If you regularly work through umbrella companies you need to keep up to date with the expenses you can claim, because that is the main advantage of using an umbrella company. So for any of you cycling in to work as a way of getting fit for the summer here's a heads up.

You can claim mileage for cycling. You will be getting 20p per mile so you may immediately think it's half that of driving, but the only fuel you'll be burning is calories.

Owen the IT manager here has been cycling in over the last couple of months, so I asked him for any tips for people considering the healthy option. Here's what he had to say.

Get a comfortable saddle, I cannot stress this enough. If you are cycling every day an uncomfortable saddle is not something you want to put up with. The Gel Sprung Saddles you can get from places like amazon are brilliant and make the ride relaxing rather than a bruising experience.

Plan your ride using a site like www.walkjogrun.net it's a great site for planning cycling (or walking, jogging or running obviously), because it also provides you with the different elivations you will be navigating over. Google maps has the terrain feature, but it's very deceptive because the heights it's intended for are significant.

Rehearse your ride prior to the first ride to work, and make sure you have time to change if you are planning on doing so, you don't want to be late because of the change in your habits.

Lastly pack some wet weather gear, we're not talking an umbrella and wellies, but a waterproof coat with a hood and a dry set of clothes are always useful. This is the UK after all and our summers can turn nasty very quickly.

Best of luck and ride and drive safe.

Hugo
@GabemUmbrella
12/07/2010

I saw this article: What will umbrella companies submit to ‘Your Freedom’? and it got me to thinking about what actual laws as a company we'd like to see disappear. There is one obvious law all umbrella companies would like to see repealed and that's the MSC legislation, but we have to keep realistic, that's not something that is ever going to happen. So I went around and asked various people in the company for their points of view on the subject.

Duncan, IT Director
"I would like to see the construction industry scheme scrapped, it's just too complicated. What makes construction workers so special that they require a whole tax system to themselves? Either apply the same rule to all self-employed workers or get rid of it entirely."

"One thing I'd like to see stopped and it's not really a law are the employment rules laid down by the ODA concerning the Olympic construction sites and Terminal 5. Currently they are not allowing any self employed workers or employed workers working through a third party like an umbrella company. It's a ridiculously restrictive practice, why if someone has been checked and has all the right insurance in place should they not be able to work on these projects?"

"It would be good to see the 24 month rule changed or clarified there are far too many grey areas in the tax system as it stands so having some solid black and white rules would be a refreshing change. I'd also be very happy to see speed cameras go."

Susan, HR Manager
"There are hardly any laws I would want to see reversed as I can understand and appreciate the justifications behind most. Mobile phone use whilst driving, Health and Safety risk assessments, these kind of laws are clearly for the safety and protection of people and that’s pretty much what I’m all about. However, if I could rant about any ‘law’ it would be towards the proposed Agency Workers Directive coming in within the next two years. Agencies and Clients alike are going to have to jump through hoops if a temp stays in the same place for longer than 12 weeks. My fear is what this will do to the temp market. No assignments for longer than 12 weeks to step around the Directive? or perhaps not bother with temps at all and just take on permanent staff and dismiss within the first year (during which no unfair dismissal claim can be brought). Every time I think about it I get more concerned, how many temps out there are actually waiting with glee to bring their first AWD claim? What will this do to small niche agencies that just can’t cope with another red tape element to navigate."

"If I could bring a law in though it would be along the lines of – if HMRC aren’t going to use a piece of legislation i.e. actually prosecute when it is clearly being breached – scrap the law. It’s not fair on the rest of us who do comply, if government bodies don’t enforce the law with those who just thought they could get away with staying as they were."

"And my final point is about yellow lines on the road – double, single. – I can’t see the difference!!!!"

Jacquie, Payroll Manager
"CIS should go, construction workers have always been treated differently. When I started before CIS there were the 714's and the SC60's, it's just unfair and complicates the collection of tax unnecessarily. The construction worker holiday pay scheme does of course go the other way, why treat two sectors who are essentially operating the same way differently?"

"The AWD is going to cause so many problems for recruitment companies and anyone looking to employ temporary workers I'd like to see it stopped. That's even despite the fact it could be positive for umbrella companies in general. Of course it can't be stopped because it's set down by the European Parliament, but hopefully the new government will be able to amend it."

Hugo
I agree with everyone else here so I'm not going to go back over that, but I would love to see the tax systems of this country tightened up. I don't mean made stricter but much more clearly defined. I said before that wanting the MSC legislation repealed is unrealistic, but clearly defining the transfer of debt legislation would reduce so much beauracracy and uncertainty within the recruitment industry. It's a waste of time and money that both could be spent expanding the economy.

Have a great weekend folks, don't get too hot!

Hugo
@GabemUmbrella
09/07/2010

The faster payments service was introduced in May 2008 to less fanfare than it really deserved, because it sped up the transfer of BACS payments from 3 days to the same day. This effectively made BACS obselete and CHAPS an expensive luxury for large transactions. For umbrella companies, especially the smaller ones it was a hugely beneficial step because it means they could compete more readily with the big companies, all they needed to do is be with a bank that can send monies via that medium.

It also wasn't just a case of getting money to contractors quicker but, in many cases, the payments coming to us from the agencies were also sped up.

When the most time intensive, and critical part of your business is matching payments to invoices, suddenly finding that you have both sides of the information earlier is a huge bonus. Before Faster Payments were introduced we relied upon a service our bank provided that would give us a forecast of the payments coming into our account and would act and pay out on this before the money came in. Not every umbrella company had this advantage because they didn't have the benefit of being as big as us.

Faster payments has also made fixing errors (no matter whose they may be) much easier, because again it can all be sorted the same day, no big administration charges from the bank, no reason for any charges to come from the agency (because it was a simple standard transaction) and no delays. In some circumstances it was even better than a CHAPS payment, because faster payments can be made right up until close of business and they will clear.

I think I've made my views on umbrella companies charging for CHAPS clear over the last 2 years and I'm not going to go on about it now, but faster payments are absolutely the way forwards because it gives your umbrella company more time to act, chase up any inconsistencies and generally do a better job while in many cases costing you less money. It just helps provide a better service.

Hugo
@GabemUmbrella
02/07/2010

The emergency budget has come and gone and as I think we were all expecting it was pretty tight. It did contain a few unexpected steps, who would have thought it would be the tories giving tax breaks to the lower paid and tax increases to the higher paid only for Labour to then complain about it?

The big news was the VAT increase which is impressive even if we all knew it was coming. I would imagine that despite the criticism it's the right move considering how little effect the drop in VAT to 15% had on the Christmas Sales.

Contractors and umbrella companies don't have anything to complain about, as things stand there might even be some opportunities appearing. Some contracting budgets may be tightening a little due to the VAT increase but in the broad scheme of things it will have little impact.

The one thing I would say is that contractors relying on a lot of public sector work should probably look at diversifying and making a bigger deal of the private sector jobs they've done on their CV.

Overall despite the belt tightening it left me feeling fairly positive about the future, and we'll know if it worked in about 4 years.

Hugo
@GabemUmbrella
25/06/2010

Well what news is there here at Gabem? The office has been decorated in the theme of the world cup, with the desks themed towards the nationality of the people at them. It's mostly a sea of red and white but there are blues, greens and some other colours out there. I had intended to have pictures for you all, but as it turns out I am not what you could call a natural photographer, so you'll have to use your imaginations.

We had some very good news recently in the form of an improvement to our expense dispensation. Several weeks ago we asked HMRC to review our dispensation to bring it up to date with the sorts of expenses we were seeing come in. In most cases there were no changes (our dispensation as it stands is pretty great), but in a couple of others the amounts of improved. Unfortunately this doesn't change the need to submit receipts (despite what other umbrella companies may have told you); but it does mean the expenses covered by the dispensation are not reported on your P11D which makes the whole end of year process a whole lot simpler and you can be confident that we're doing the right thing and keeping you compliant.

In other audit news we have KPMG in for an audit as of Monday, this is part of their yearly service and it's always good to see them even if it does mean lots of trips back and forth to the filing cabinets.

Susan has made a minor update to her legal bits on Vetting and Barring in the light of the recent government announcement that the whole process would be put on hold until a complete review of the scheme can be carried out.

I hope you all have a great weekend, fingers crossed the weather holds for further BBQs.

Hugo
@GabemUmbrella
18/06/2010

HMRC recently released a page on their site called 'Spotlights' containing advice on how to limit your exposure to tax avoidance. It's one of the most well thought out and readable pages that has ever appeared on the HMRC site, and I urge you to go and check it out. It runs through everything from things "to be wary of" down to specific schemes which they

"....consider have the widest implications and about which there is the greatest need to warn potential users."

HMRC normally refuse to comment on any sort of tax avoidance so for them to be doing so now shows a significant change in attitude, and not one to be taken lightly. The page takes time to mention a wide variety of schemes including but not limited to offshore companies, schemes said to be approved by HMRC and Employee Benefit Trusts; the latter of which earns itself several paragraphs.

Some of you at this point might be wondering why HMRC are talking about tax avoidance rather than tax evasion, when tax avoidance is the term for legally reducing tax? Well that distinction is true for the US, but here in the UK where we like our sauces browner and our laws greyer, tax avoidance is the term used for following the letter of tax law rather than the spirit of it, making avoidance still potentially illegal.

It's actually very welcome to see HMRC come out and say something, especially something as strong as

"Where we see such schemes being used, subject to the particular facts, we will make a challenge and seek to ensure full payment of the right tax with the right due date."

Given the state of the deficit, public sector finance and the pressure on HMRC in general to pull in money you can be fairly certain that not only will they be making the challenges they talk about, there is a high chance that they will be successful.

Go take a look, it really is quite an eye opener.

Well it's the weekend and the world cup has started; whether you love it or hate it you're not going to be able to avoid it, so I suggest buying some meat and 'refreshments' for a bbq in the sun or sitting back and enjoying it, I know what I'll be doing.

Look after yourselves and best of luck to you no matter what team you support.

Hugo
@GabemUmbrella
11/06/2010

Tackling seems such an innocuous term, it's something that usually happens between sportsmen as part of a game in which they are both willing participants. Even children are allowed to do it.

When HMRC choose to tackle something you can be certain that whatever they are tackling will feel it and be changed forever. The last time I heard HMRC using the term tackling was when they were tackling managed service companies, and speaking as someone who was working in the industry that was 'tackled' it's not something you'd choose to do twice, or even once. International Rugby teams should take a leaf out of HMRC's book.

So how are HMRC actually going to go about 'Tackling Offshore Tax Evasion"? According to Deloitte, people that fail to pay taxes on offshore income or gains could face penalties of up to 200% of the tax evaded effectively doubling the current maximum penalty. It's true that for the time being they are offering a form of amnesty if you manage to tell them before they find out (reduced penalties rather than none), but the time in which that's possible is shrinking.

With increasing co-operation (in the form of information exchanges) between countries and more importantly the financial institutions within those countries HMRC are getting a better view of offshore tax evasion all the time. I would imagine that a lot of companies are considering getting a word in early to avoid the consequences.

The new penalty regime was expected to come in April next year, but with talk of an emergency budget in June and the Conservative government hungry to reduce the deficit we could be looking at something happening a lot sooner.

Hugo
@GabemUmbrella
28/05/2010

It may have been touch and go there for a while, but we managed to elect a new government, even if there has been a lot of initial fuss about the process and the result.

Now we can finally start talking about their intentions with initial news about policy and where their focus will lie, and it's all starting to look suspiciously positive for the contracting world. I hate to say it but I'm starting to feel optimistic, this can't end well surely?

We've had it rough for a long time, with new pieces of legislation chipping away little bits of the freedom that temporary work relies on to function and thrive. There was IR35, the Tackling Managed Service Companies legislation, the Agency Workers Directive, and the looming False Self-Employment in Construction: Taxation of Workers consultation, all of which whatever their intentions pushed people from the contracting market into a full time employment situation that they didn't necessarily want to be in.

Things look to be changing though with the new government's focus fixed on deregulation, repealling restrictive laws and helping small businesses grow, all very good news. There is even talk of amending IR35 (a full repeal seems increasingly unlikely, despite pre-election indications), which depending on the scale of change could be a very popular move indeed in contractor circles. This will probably be included in the impressive sounding "Great Repeal Bill" perhaps the first piece of British law asking for audience participation. Is this a chance for people to have more of a say in things or is that dangerous optimism creeping in again?

I'd love to stay skeptical and suspicious, but I think the prospect of a sunny weekend has put me in too good a mood, for now lets cross our fingers and hope for the best, in contracting terms it can only really get better.

Hugo
@GabemUmbrella
21/05/2010

People discover the umbrella company industry all the time and as with any exploration there are false leads and red herrings to cause problems along the way.

These myths have proven difficult to clear up because despite the best effort of the more informed people in the umbrella company industry the less reputable elements continue to promote them.

I'm not a fan of deception or misinformation, true it might bring them to your door, but they are the ones who stand to lose the most, and it damages the industry as a whole. I much rather people are informed and know exactly where they stand, it saves time and trouble later on; I am in the happy situation that my employers agree with me.

So here we go, here are the myths that just won't quit.

1. Umbrella companies can be HMRC approved. No. They. Can't.....Well that was easy, next.....Okay maybe I should expand on that a little. There is no official standard within the umbrella company industry (something several companies have actually called for) so there isn't a test you can pass, there isn't an approval list, there are just regular audits. If you pass the audit great, if you fail, well it can either be some minor things they would like changed or something major that could cost you millions.

As a final argument against "HMRC approved umbrella companies", what do you think would happen to all the unapproved umbrella companies?

2. Dispensations mean you don't have to send in receipts. Dispensations are between HMRC and the umbrella company in question. They are there to streamline the process of Year End, allowing the umbrella company to reduce what they declare on a P11D to The Revenue in the name of each employee. Even with a dispensation contractors working through the umbrella company still have to prove that they incurred expenses and have to provide receipts.

If your umbrella company isn't in the habit of requesting receipts and and for some reason HMRC were to query an expense re-imbursement, you would be required to produce the receipt or face the possibility of a bill for back taxes (and probably further inspection).

3. I can claim the full amount listed on my umbrella companies dispensation even if I haven't spent as much as that. Definitely not. HMRC says that expenses have to be "incurred wholly and exclusively in the performance of the duties of the employment." it's actually the very first word in that statement that tells you everything you need to know. Expenses have to be incurred, if you haven't incurred them and you claim for them that could be seen as fraud.

Several umbrella companies used to state that you could claim the maximum amount of their dispensation each week. It was part of their marketing literature, until someone pointed out what they were actually telling people to do.

4. Some umbrella companies can get me more money than other umbrella companies. Only by reducing how much they cost you or allowing you to claim expenses you haven't incurred or can't prove. All umbrella companies should work the same way, pay you minimum wage at PAYE and use expenses to increase your take home by reducing your tax liability. If this is not how your company is operating, it's probably not an umbrella company, and could be an "umbrella company alternative", a distinctly riskier enterprise.

5. I will be self employed through an umbrella company. This one is probably down to poor initial explanations. When you work through an umbrella company, you are an employee of that umbrella company (even if the umbrella company you are working for doesn't mention the word anywhere in their documentation). You are entitled to all the statutory benefits that go with that, which leads nicely on to.....

6. I am not entitled to Statutory Maternity Pay (SMP) through an umbrella company. When you work through an umbrella company you're an employee plain and simple. As an employee, you are entitled to Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay, and all the other benefits associated with employment. If you're working for an umbrella company and are not an employee or entitled to SSP you need to speak to your company as there is a potentially serious problem.

7. If I claim expenses through an umbrella company I will get a full amount back. This is actually quite complex, but it comes down to this: If you were to spend £100 on accomodation and put it in as an expense claim your take home pay would probably be around £40 more than if you hadn't claimed expenses. The £40 represents the tax you would have paid on that £100 had you been paid without claiming.

8. If I want to be paid the same day I need to pay for a CHAPS payment. Paying for CHAPS is something of a gripe I have with the umbrella company industry. There should be no need to pay for a CHAPS payment, it should be a standard part of the service. Now you might think that CHAPS payments are expensive, £20-£30 maybe? Well like anything you buy in bulk you can get a discount, and in the case of CHAPs it is significant, probably in the realms of a 75% discount.

Even if you were to walk into a bank and ask them to make one for you it would only cost around £20.

There is a second part to this answer, why use CHAPS at all? The Faster Payment system was introduced last year, it has same day payments, it costs significantly less and is easily processed. There is no reason to use CHAPS now, let alone pay for it.

9.An umbrella company that costs £15 net is better value than one that costs £22 gross. Okay value is difficult to quantify because it depends on the individual, but if we go on XCOSTX alone if you convert the £22 gross to a net figure on a normal rate of tax it comes out as £15.18. The net figure will fluctuate based on your tax code, so any predictions made on a site are likely to be displayed to put the company in the best light possible, regardless of if it will apply to you. One of the things to look out for are the words "fees start from" and "from as little as"

10. I can take home 85% of my gross income by working through an umbrella company. This is probably the easiest of the 10 to answer: No you can't, any company that tells you it can get you 85% of your gross income is either being deliberately deceptive or not an umbrella company, either way you need to do some research. Remember if it seems too good to be true it probably is.

Have a good long weekend folks!

Hugo
@GabemUmbrella
30/04/2010

Spring is finally officially here, I have to admit I was getting a little sick of Winter. With it come the usual yearly chores that are part of working for an umbrella company, nothing too painful, just the equivalent of spring cleaning I suppose.

Payroll have been dealing with the usual payroll year end, although it has been almost suspiciously frustration free this year with payment gateways running like clockwork (one government IT project that appears to have been a success).

The budget was a welcome anti-climax with very few changes beyond the basic requirements that every business has to make. I'm not going to lie to you the umbrella company industry could do with a little excitement (or any excitement for that matter) but a quiet budget is a good budget as far as we are concerned.

The only thing that hasn't been running like clockwork are the blog posts, and for that I apologise, all my fault, I am 100% to blame. it was time well spent I assure you, as I have been working with the IT department on some exciting things for later in the year. The members section which (hopefully many of you use) is a little dated, but that is all set to change.

We've been putting together a new design with new functionality that will make it possible for you to deal with practically any aspect of your Gabem employment or self-employment from where ever you are in the world. On top of that we aim to have online sign up in the near future, making it much easier for new people to join up or come back to Gabem.

I have already started a post for next week, so we should be back on track blog wise, thank you for your patience.

Anyway look after yourselves and enjoy the sun while it lasts, lets hope Iceland doesn't ruin it.

Hugo
@GabemUmbrella
16/04/2010