Susan's Legal Bits

In October 2008 Susan was interested in.....

....answering a couple of your questions, one on offshore payroll companies and another on travel allowances.

Hi Everyone!

A couple of things to talk about today, back on the 25th of September I received a question from a long time Gabem Umbrella Company employee named Paul, he was asking this:

"....it would be helpful if you could provide an outline of the differences/benefits between operating under an Umbrella Company as opposed to working within the CIS Scheme as this was touted once as a possible option and was wondering if this is still being considered?

And finally, there are a number of so called Umbrella companies operating from the Isle of Man, whereby users obtain over 95% over their gross weekly income, what risks are posed in operating through one of these type of companies."

So here is my answer:

Hi Paul, Thank you so much for your enquiry and sorry for my delay in getting back to you. Hopefully you will have noticed by now that our website is answering your first question about the benefits and differences of working through an umbrella company and working as a self employed contractor under CIS (or not).

It is very exciting for us to be able to offer these three options now and we are already getting a great deal of interest which we love. For you and anyone else interested in using Gabem CIS or Gabem Solo you must be confident you act as a self-employed worker for your end client. If there is any chance that you might 'look' like an employee of theirs then the PAYE umbrella service is the safest option. Of course the difference between employed and self-employed is that using the umbrella option sees you pay tax as you go whereas being self-employed means you sort out your own NI contributions and pay weekly class 2 NI of £2.30 per week and the remainder of your tax at year end after completing a self-assessment form (this is also when you can record your expenses and have them reimbursed against the tax you pay under HMRC guidelines).

For some people it is obvious that the administrative burden and having to wait until end of tax year to sort out tax and expenses is not suitable and in this case the umbrella option is the best to take as you literally have everything taken care of throughout the year (including expenses reimbursed from your profit each week).

I know our web master has spent a great deal of time and effort on the explanations on the web pages so I don't want to steal you away from reading this website for yourself and of course you can always give us a call for an informal chat about your personal situation at any time.

Your second question was regarding my opinion on offshore companies allowing you to essentially avoid paying full tax and perhaps even NI. For any company offering to give you 95% of your gross as you go along I only have to assume that you will face a tax bill at the end of the year through self-assessment ? If not then I would have serious concerns and believe the obvious risk attached to using such a company would be that HMRC could investigate you and the first thing they would do is assess whether you had paid the correct tax on monies you earned in this country.

Under legislation from way back the government (HMRC) has the right to expect and indeed collect tax on all earnings created/given in this country and, if they find that anyone has earned in this country and not paid the appropriate tax as defined by law, they can demand what they believe is owed to them. Of course companies offering these offshore services may have a system in place whereby they will defend you should HMRC come knocking, or perhaps they are disguising your earnings from working in the UK somehow so that even if HMRC investigate you they will be able to say the monies you received from them free of tax were not wages. It may be that the company providing you with the service is protected as an 'offshore' entity but you probably aren't. Either way it would not sit well with me I'm afraid but that's just a personal opinion and I know everyone has different attitudes to risk.

It is of course worth doing more research but remember, if it sounds too good to be true it probably is, and if you 'think' you are breaking the law... you probably are!!

My advice to anyone tempted to use a company offering 'offshore' as a payment method is to do a lot of investigation first and ask the company the pertinent questions regarding 'why don't I have to pay tax on my UK earnings ?' 'what happens if HMRC investigate me' if their answers sit well with you then you have free choice to go ahead and take them up on their offer.

The second question we have is from Brendan, another long term Gabem member:

"I have been with Gabem nearly 3 years now and in that time the mileage allowance has remained the same, bearing in mind that the price of diesel and the cost of running a vehicle has increased dramatically in that time companies like Gabem should be lobbying either the taxman or government to have the allowance increased, I await your comments."

We completely understand where you are coming from with regards to the petrol prices. HMRC sets allowance and unfortunately have little sway in their decisions.

We do, however, lobby the Government regularly, normally as part of a larger group to ensure our voice is heard. We have recently contributed, along with a number of other Umbrella companies, through our advisors, to the Government Consulatation: “Tax Relief for Travel Expenses: Temporary Workers and Overarching Contracts”. It is clear that the Government would like to see the end of travel expenses for contractors and temporary workers.

However, we have argued that the role of contractors and freelances within the UK economy is vital and by its very nature requires individuals to travel regularly to different places of work for which tax relief on travel expenses is essential. It is unfair to compare their role with that of permanent employees who have one place of work. We do hope that the Government listens to our point of view. Whether they then increase the petrol allowance with the increasing drive for more environmental forms of transport is another thing.

One thing you can be sure of is that we will continue to champion the cause of our employees and contractors with the Government whenever we can.

I hope that answers your question Brendan.

Have a great month everyone - I might see if I can do another legal bit sooner rather than later and if you email me with queries Hugo is much more likely to give me some space to do my rambling. As always I hope it is of interest to you.

I look forward to hearing from you

To give Susan your suggestions and comments you can get in touch with her here.

All comments provided on my blog are for informational purposes only. My thoughts and opinions are my own with agreement from my employer as being suitable for sharing with the wider world. Any advice, or writing that might be taken as advice, should not be deemed in any way as professional Legal advice and are only the musings of a HR practioner whose sole aim is to help where she can.