Still not clear about Umbrella Loan

[tam]

I'm about to take a contract role and thinking of using an umbrella company that charges 13% fee. Having read previous posts in this forum and elsewhere, I'm still not 100% sure about implications such as:
1. the fact is that you take home 85% seems great, but is this legal under the eye of the tax man?
2. the umbrella company says that I will be sent a letter from a company's director stating that I will not be liable for a loan. is this good enough not to be worried about possibility that they may ask for loans to be repaid later?
3. if the company winds up, will you just lose any payments that they have not paid you (as a loan)?
4. and finally is there any legal insurance to protect you from being investigated later?
5. if the umbrella company is not recommendable, what is a better choice? Opening a ltd company seems obvious but I really don't want to go down that way.

As you can see, I am so confused. Any advice would be much appreciated

Regards
Tam

[vetran]

Search on BN66, EBT's (Employee Benefit Trusts) and Umbrella Company loans then realise this is a bad IDEA that the taxman really doesn't like and now has the powers to crush with large penalties.

IANAL / IANAA

[dmini]

1. No
2. No (makes it not a loan therefore 1. is illegal)
3. Not necessarily. If just a loan, surely you are a debtor of the company, therefore your "debts" could be chased through courts
4. Goodness knows
5. Go for a STANDARD umbrella - ContractorUmbrella, Parasol (Yuk but better than your idea, in my opinion..)

These loan schemes have always been suspicious ground - some of these schemes have started to be shut down by HMRC, and large amounts of tax demanded of participents. With footballers trying to use them now as well to avoid 50% tax its going to happen even faster in my judgement
However IANAA

[tam]

still not clear about umbrella company

Thank you very much for your reply.
I think I will have to re-think about using the umbrella loan company.

You mentioned that Parasol and ContractGroup are fine.
1. Are they 100% legal?
and is it these companies:
Parasol Group
http://www.parasolgroup.co.uk/
ContractorUmbrella
http://www.contractorumbrella.com/

2. what are they 'YUK'?
3. do you know the percentage of net pay if I was to use them?

Thanks again
.

[tam]

umbrella company

also if I use contractgroup or parasol, will I avoid IR35?

[pzz76077]

Bottom line -dont do it unless you want to gain the attention of HMRC.

PZZ

[TykeMerc]

I'm about to take a contract role and thinking of using an umbrella company that charges 13% fee. Having read previous posts in this forum and elsewhere, I'm still not 100% sure about implications such as:

13% is an absurdly high fee from an Umbrella, do a little research into real Umbrella companies, they charge an awful lot less (£20-40 per payroll period is common).

1. the fact is that you take home 85% seems great, but is this legal under the eye of the tax man?

Debatable, it depends how they claim to give this return, if it's loan based then be ready for it to get shot down in flames by HMRC, if it's false expenses levels then thats Tax Evasion and can land you in jail as it's a criminal offence. Your expenses claims are your responsibility so it's you that are liable for any penalties.

2. the umbrella company says that I will be sent a letter from a company's director stating that I will not be liable for a loan. is this good enough not to be worried about possibility that they may ask for loans to be repaid later?

Definitely not, in fact that would be clear evidence that it's income and NOT a loan, again that's Tax Evasion. If you sign any kind of credit agreement then you owe the money and it can be recalled.

3. if the company winds up, will you just lose any payments that they have not paid you (as a loan)?

Yes, it's NOT your money until it's been paid to you, you are an employee of the Umbrella and you sign over your contract rate to them for the Salary and benefits agreed, if loans are agreed in the contract then that's clearly income and not a loan.

4. and finally is there any legal insurance to protect you from being investigated later?

Possibly, but extremely unlikely in event that you're using an esoteric payment scheme that disguises income as "loans".

5. if the umbrella company is not recommendable, what is a better choice? Opening a ltd company seems obvious but I really don't want to go down that way.

If you don't want to go Ltd then there are plenty of reputable Umbrellas out there, but they certainly won't promise you an 80+ % retention rate as frankly that's rediculous. Depending on your justifiable expenses 60-70% retention is more likely. Arguably if your contract falls outside IR35 you can do better than that with a Ltd and proper accountant.

As you can see, I am so confused. Any advice would be much appreciated

Regards
Tam

I hope the answers on this thread help resolve some confusion. Incidentally read the next sentence and absorb it carefully......

If a tax and payment solution looks too good to be true then it almost certainly is too good to be true. Avoid like the plague.

[sal626]

1. Currently its legal. It’s a tax avoidance scheme. But the govt is cracking down on tax avoidance so don’t expect it to be legal forever. Saying that, so far the govt has not been able to challenge these schemes.
2. The important thing to find out, is that the Trust is operated by another entity or not.
3. Yes, but this is same scenario if a “regular” umbrella winds up as well.
4. Not aware

[Menelaus]

I'm about to take a contract role and thinking of using an umbrella company that charges 13% fee. Having read previous posts in this forum and elsewhere, I'm still not 100% sure about implications such as:
1. the fact is that you take home 85% seems great, but is this legal under the eye of the tax man?
2. the umbrella company says that I will be sent a letter from a company's director stating that I will not be liable for a loan. is this good enough not to be worried about possibility that they may ask for loans to be repaid later?
3. if the company winds up, will you just lose any payments that they have not paid you (as a loan)?
4. and finally is there any legal insurance to protect you from being investigated later?
5. if the umbrella company is not recommendable, what is a better choice? Opening a ltd company seems obvious but I really don't want to go down that way.

As you can see, I am so confused. Any advice would be much appreciated

Regards
Tam

13% is a huge fee - far higher than any others that I can think of.

Give contractor umbrella a ring: they're good and they've got the advantage of being a fixed-fee provider (www.contactorumbrella.com)

[MarkOD]

i think it's safe to say it's not an Umbrella. An umbrella does everything by PAYE and doesn't mention anything about "loans" etc etc

bargepole!