• Foxmain Associates

New guidance for agency workers and contractors working through an umbrella company

  • HMRC has created new guidance for workers and guidance who work through an umbrella company.

  • The guidance covers holiday pay and entitlement.


HMRC has created new guidance for agency workers and contractors who work through and umbrella company.


The guidance covers who will pay the worker, how they get paid, what they will get paid, undertstand what they get paid and tax avoidance.


HMRC has also amended various other off-payroll working webpages to link to this new guidance - Working through an umbrella company - GOV.UK (www.gov.uk)


If you are employed by an umbrella company, the tax rules on agency workers and off-payroll workers (IR35) will not apply to you.


Who will pay you


You are paid by the umbrella company because they are your employer. They will: -

  • Pay you for the work you do for the employment agency's clients;

  • Deduct any Income Tax and employee National Insurance Contributions due under PAYE from your pay.

How you get paid


The client you work for pays the agency for your services.


The agency deducts a fee for placing you with the client and pays the rest of the money to the umbrella company.


This rate is different to the rate you get paid from the umbrella company, because of the additional costs for the umbrella company, which include: -

  • Administration costs (sometimes charged seperately to you by the umbrella company);

  • Employer National Insurance contributions;

  • Employer workplace pension contributions;

  • Holiday pay;

  • Other amounts to cover other specific costs, such as the Apprenticeship Levy.

The rate paid to the the umbrella company by the agency will need to cover the costs of employer National Insurance contributions. The umbrella company will use this money to pay employer contributions and not deduct the contributions from your gross pay.


What you get paid


The rate ytou get from the umbrella companyis sometimes known as your contract rate and should be set out in your employment contract. It will normally be an hourly rate at the National Minimum Wage plus another taxable amount often described as a bonus or additional pay. This is your gross pay, before deductions.


If any of this amount is described as non-taxable, then your umbrella company could be involving you in a tax avoidance scheme.


Your gross pay is then subject to deductions of Income Tax and employee National Insurance contributions through PAYE, as well as any other deductions such as your workplace pension contributions.


The remaining amounts is your net pay.


An umbrella company cannot by law deduct employer National Insurance contributions from your gross pay.


If you think employer National Insurance contributions have been wrongly deducted from your grosss pay, or any other incorrect deductuions have been made, contact your employer, the umbrella company. If this does not work, then contact ACAS, the Advisory, Conciliations and Arbitration Service, Citizens Advice or your trade union representative.


Holiday entitlement


You are entitled to paid statutory annual leave which is based on the hours you work.


If you leave the umbrella company with annual leave owing to you, the company must pay you for it.

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