Contractors' Questions: Is my umbrella caught by new tax rules?

Contractor’s Question: The umbrella company I began using two months ago claim that due to a change in tax law they are not granting any loans. They say that from April this year, any loan they pay to a beneficiary will become subject to PAYE, whereas before it was tax free.

It’s as a result, they claim, that I have not received the bulk of my income for December. When I asked for it, I was told the trustees are not granting any loans at this time. There was no indication of when they might pay. Now the umbrella company is not responding to my e-mails or phone calls. Should I be concerned? Should I withdraw from the umbrella; sit tight or take an altogether different approach?

Expert’s Answer: The draft legislation for 'Disguised Remuneration' was issued on December 9th and forestalling rules has meant that although it will only be in place from April 6th, it actually took effect on December 9th. It sounds as though the company that you are working through may have been affected by this legislation.

I would be concerned if they are not responding to phone calls or emails, as you would be with any organisation. As the legislation has changed recently this may have some bearing on the company. It is important that you make contact with them and should consider an alternative approach, although it is difficult to comment further without seeing the contracts that are in place.

I would recommend that you consider a limited company or another umbrella as an alternative, and, if the latter, do some research about the company that is offering the service. Ask for client referrals and even discuss the company with your colleagues.

The most important thing you can do though, in your current situation, is to make contact with the umbrella – even if you have to show up at their offices. Then establish the best route for you to have the monies returned. I would suggest that if they are not forthcoming with information that you seek legal advice urgently.

The expert was John Lyon, managing director of contractor accountancy firm Independent Contractor Services. 

Jan 21, 2011