Supply teaching - umbrella companies

[MsHerodotus]

Would be grateful to know what people's experience is of this.
I am just starting supply teaching, and one agency is very heavily promoting an umbrella company. Do others recommend this? Pay is higher and you an claim expenses as well, but am very nervous. Maybe I am an old cynic, but when something seems too good to be true, generally there is a catch...

[toomuchicecream]

DH (tax accountant) says that File on 4 on Radio 4 did a programme on this a while ago - don't know if you could still find it on the iplayer?

Apparently this is the scheme that Jimmy Carr was in (although his was off shore). The umberella company will bill the school for the supply. You will then be a director of the umberella company and can draw down dividends so the rate of tax is lower and you will pay no national insurance. Where is the umberella company head quartered?

Jimmy Carr wasn't got by HMRC - it was by the media. So HMRC haven't outlawed this scheme. Depending on how much you draw out it can save you a reasonable amount.

Of course, you might have moral qualms about reducing your tax bill in this way. DH also says he'd need to see the paperwork to be completely sure what they are suggesting. (Are you any nearer to understanding after this answer ?!?!?!?)

[MsHerodotus]

Hi, thanks that is something different, because in this case you are not a director, you are an employee of the umbrella company, which is a UK company, and pays tax and NI. It consolidates payment from several agencies.

[dogtanianandthe3muskehounds]

I did supply teaching for a few months and was paid via one of these umbrella companies. I didn't even realise it was something to be suspicious of! I certainly wasn't a director or anything like that, as far as I was concerned they company just carried out the payroll as I was with a small agency that didn't have its own payroll department. It was based in the Channel Islands though, so perhaps it wasn't entirely above board.

[MsHerodotus]

Hi - there probably isn't anything to be suspicious of, but as I am new to supply, just wanted to run past others...
My concerns are

• do they pay employers' NI - if they don't, I won't touch them.
  

• are the 'expenses' legitimately tax-deductible. This is the harder on because as long as it is clearly within rules is fine. if it is a grey area, - I intend to run a mile....

[Littlemisssunshine72]

I do supply and am
paid by umbrella company. I actually find it really convenient. Both agencies I'm with use same company so one payslip even if worked for different agencies. Can claim expenses. Hardly pay any tax but think that is more to do with the fact I work two days only. Have used it for over a year and had no problems.

[MsHerodotus]

LittleMiss Thanks! I have no idea yet how many or few days I will get, and have signed up with 4 agencies to get all the reference checking etc out of the way.

[Kimaroo]

Someone will have to pay employers NI. If it doesn't come out of your earnings then you will be charged a set amount for the umbrella company expenses that will cover it. Be wary of paying yourself a large dividend to avoid employers NI, the tax office are aware of all dodges that cost them money!

[MsHerodotus]

Precisely. These are not 'Jimmy Carr' type set-ups with 'Directors' paying themselves in gold bars, just need to ensure that are a legitimate business (could be!) set up to save hassle.

[toomuchicecream]

Fair enough - DH was obviously off on one last night!

[sashh]

toomuchicecream

Sorry that's not it at all.

OP

You become an employee of the umbrella company, they handle tax/NI just like any employer and they also handle expenses you are entitled to as a temporary employee.

I have used two. Giant are OK but you have to supply receipts for everything before payday or they won't pay expenses, they will possibly pay them the next month unless you are not earning enough, then they just don't pay.

JSA pay expenses with your pay for mileage and you only request receipts if every so often.

You have to keep all receipts because you can be audited.

They charge you for doing this but you come out with more in your pocket because you are making claims for petrol etc all the time.

Holiday and sick pay are interesting. Giant pay a bit extra as holiday pay, JSA you accrue and can ask for it to be paid whenever you want.

Giant - you have to submit everything for the 1st of the month and you are paid on the 10th of the next month - quite a long time to wait after summer for payday.

JSA will pay weekly if the agency are OK with that, they pay the day they receive funds from the agency. I did a 1 day cover and was paid the next day.

There are other companies but these are the only 2 I have worked with/for.

JSA also have other 'schemes' for self employed people where they handle the office work and one for small companies where they handle payroll.

There are other companies and some agencies will use the one you prefer.

[Littlemisssunshine72]

Key portfolio- you simply put in no. of miles for petrol expense -no proof needed(although they ask what time you left house and return which seems a bit daft as you may have nursery drop- offs/shopping to do, etc) but generally not too painful. If you want to claim for other expenses such as lunch/parking tickets you will need to upload receipts but I never claim for these.

[LostInMusic]

I'm a supply teacher too and have opted out of using an umbrella company. I found the way they operate very confusing and the more I looked into it, the more I wasn't necessarily sure that it's an entirely legal situation regarding tax. The confusing thing is that these companies refer to 'expenses', but they don't actually pay expenses, they just offset the tax on that amount - so you don't pay tax on the amount that you claim for petrol, lunch etc..
I worked it out and I think it is only worth risking an umbrella company if you are pretty much working full-time and travelling long distances to get to schools.

[MsHerodotus]

Lostinmusic Completely agree! I worked for many years in a profession related to payroll, and am only too aware of the pitfalls.
I have contacted 4 agencies - 2 of them mentioned the umbrellas but did not push it. On pushed it, but used a carrot (higher pay rate) rather than a stick 0 won't employ you without. Unfortunately the 4th, which is a major player, pushed it as compulsory, which put me off them.

[Oakmaiden]

I bloody hate having to use an umbrella company as a supply. I really resent the fact you effectively have to pay them for letting you work.

And I still don't understand why I get my holiday pay DEDUCTED from my paypacket every week, and then if I don't claim it "in time" I completely lose it. Which means I have to have all my holiday pay before the end of the tax year, and have nothing accrued for the summer holidays when it would actually be useful.

Plus, you are not actually paying me £75 a day if you are then taking away some of it as my holiday pay and some of it for the privilege of being paid.

[Oakmaiden]

I may have a bit of a chip on my shoulder about this...

[MsHerodotus]

Oakmaiden have finally cottoned on to this scam practice.
By reducing your net pay, either through expenses deductions, or 'holiday pay' they are reducing the liability of Employers' tax & NI because that will be calculated on the lower figure- so that is where the margin is for them - was wondering about this.
I am going to lobby my MP about this - soumds like tax avoidance on the part of the companies, with teachers used as useful idiots innocent vehicles.

[MissMillament]

Oakmaiden - one supply agency that uses an umbrella company told me that I could opt out of the holiday pay if I wanted. I ended up not getting any work through them though and being employed directly by a school so I don't know how it worked.

[MsHerodotus]

Ha, yes have had every company offering to run the payslip. That is a smokescreen. The point is you don nt have to be a limited company - you can still reclaim mileage etc via your tax retune if they are legitimate expenses - but this is dubious. Teachers may well find themselves pursued for unpaid tax a t a future date, and you can be the umbrella companies have a disclaimer for liability in that case.
The whole business model is based around avoiding tax by minimising Employers NI - otherwise they would fade away.
Luckily I have found a reputable agency, which gets me as much work as -I want at the top daily rate , without insisting that I submit to the scam .
Definitely y worth shopping around re agencies - there really is not such thing as a free lunch, however many payslips they run.

[GregDickson]

MsHerodotus sorry you may of misunderstood my offer of running a demo payslip this was to answer your question about NI and expenses. You're right you can claim expenses but you still have to do the paperwork and have an understanding of what you can claim. There is nothing dubious about it and set by HMRC not the umbrella or agency.
I pleased to hear you've found a solution that is working for you.

[MsHerodotus]

The umbrella companies make money by minimising the employers NI - this is a form of tax avoidance. Some people may be happy to do that, even tho' they run the risk of later being pursued by the Inland Revenue, but most are simply unaware of that risk.

[CateBlanket]

Welcome to Mumsnet, Greg

[GregDickson]

Thanks Cate
MsHerdotus
I'd be interested to hear how umbrella companies are making money from minimising employers NI. What makes you think this.

[TheOnlyOliviaMumsnet]

Hi Greg
Details of advertising on MN here
Thanks so much
MNHQ

[GregDickson]

Thanks Olivia, do you think i'm advertising in this thread? I did mention a page on our site (not linked) and HMRC to provide more information to the OP. If this is against your t&c's then please accept my apologies. I was only trying to help the OP with her questions about umbrella companies. I'll remove the post you feel is advertising if you let me know.