Five myths about umbrella companies

Many expats find umbrella companies appealing because they offer a fixed-fee service that’s payable only when used. But employment like this is not without contention. 1st Contact dispels five myths surrounding umbrella companies. 

5 myths about umbrella companies

Umbrella companies have had to deal with a host of criticism from the government and taxman. Choose an umbrella company that’s fully compliant with the latest tax and legal legislation. Photo credit: Loca Luna / Anna Gay via photopin cc

Myth #1: As a contractor, I can claim a daily subsistence allowance as an expense, without receipts.

If you’re working on contract away from your normal place of work or staying away from home overnight, you can claim actual meal costs.  Contractors are entitled to subsistence payments, within reasonable restrictions, that is. For example, you can claim back £5 spent on food when you’re away from home for a period of up to five hours, and £10 when you’re away from home for a period of up to 10 hours.

These daily subsistence claims will not require you to submit receipts to your umbrella company, but you must retain them in case the HMRC requests them. Equally important – you must be able to produce receipts for any other costs that you claim as an expense; legally, you must keep receipts for a period of five years.

Myth #2: If I use an offshore umbrella company, I can reduce my tax and NI liabilities because UK tax regulations don’t apply.

From 1 April 2014, offshore umbrella companies will carry risks, so rather use a UK-based umbrella company.

Myth #3: My umbrella company protects me from investigation by Inland Revenue.

If Inland Revenue becomes aware of any fraudulent activity, you will be investigated and will be liable for any underpaid tax, along with harsh penalties to pay.

No umbrella company can protect you from a random investigation by Inland Revenue, or Magnum PI.

Myth #4: I can get around the 24-month rule and continue to claim expenses after 24 months on a contract by switching to a different umbrella company.

A workplace is deemed a temporary site only if you work there for less than 24 months. After two years at the same site, having spent 40% or more of your time on-site, you’re no longer able to claim travel or accommodation expenses. Moving to a different umbrella company won’t change the situation at all – the rule applies to the actual site, not the umbrella company you work under.

Myth #5: The work-related expenses that your umbrella company claims on your behalf must be paid back to you.

Work-related expenses are used to lower your taxable pay and increase your take-home pay. You cannot claim them back from the umbrella company.

For any advice or information on umbrella companies and the easiest, legally-compliant ways to ensure the best take-home pay, visit 1st Contact Umbrella.