Working through an umbrella company – is the HMRC guidance perfect? (Not yet)
The 29th April 2021, it was an insignificant day for most, a day more likely to be remembered as being International Dance Day than as a watershed day in the temporary labour market. For those who don’t know what I’m talking about – Thursday the 29th April was the day Her Majesty’s Revenue and Customs posted the Working through an umbrella company guidance.
I won’t lie – I read the title and expected a war and peace length article full of woolly concepts and vague interpretations of how umbrella companies operate that would likely add significant fuel onto the anti-umbrella arguments bonfire.
What I read though was a complete breath of fresh air. It was succinct (for HMRC) and as clear a description of how compliant umbrellas operate as could be hoped for whilst highlighting some of tax avoidance schemes that contractors should look out for.
It comes off the back of a few months of intense scrutiny of the umbrella industry, with questions raised about holiday pay, and the long-standing issue of people not understanding what the umbrella rate is, and what it is made up of.
These are well addressed, and umbrella companies could do worse than include a link to the guidance in their starter packs or employee handbooks.
What about expenses?
One thing that the guidance completely avoids discussing is contractor expenses. The main point of the guidance is to give easy, clear information to “entry level” umbrella workers who previously had to scour the internet for advice that largely came from umbrella companies themselves. However, stating that any element of non-taxable income could be part of an avoidance scheme could be seen as a scaremongering tactic. Now whilst I wouldn’t expect an in-depth analysis of expenses on something that is meant as a very high level overview, I feel they could have been mentioned.
Time will tell
Now whilst it is easy to praise the guidance from a point of complete understanding, the real test will be the feedback from the contractors the guidance it is aimed at, and whether the common misconceptions (especially those addressed in the “How you get paid” section) are finally put to rest, or whether the only line they read is “An umbrella company cannot by law deduct employer National Insurance contributions from your gross pay.”
The guidance provided is a great start by HMRC at demystifying the umbrella calculation, and hopefully as the information is dispersed and assimilated, the vast majority of compliant umbrella companies will cease needing to defend themselves every time they are mentioned in the media.
by Matt Jennings, Client Solutions Manager