In my world, the term “self employed umbrella company” is a tad paradoxical. After all, a traditional PAYE umbrella employs their workers and provides (or should provide) the various benefits commensurate with employment (holiday and sick pay etc.).
So why is there such a buzz at the moment about the use of this relatively new trading structure and how does it differ from your average umbrella company?
Let’s take a closer look.
According to some of the early providers, a self employed umbrella company acts as a simple conduit between the worker and end client or recruiter. No difference between a traditional umbrella company I hear you cry!
Until of course you compare the treatment of tax. A PAYE umbrella company invoices the client / recruiter gross, deducts PAYE, employee’s and employer’s national insurance contributions. They also account for holiday & sick pay, pension contributions and maybe additional things like child care vouchers or gross charitable donations.
A self employed umbrella company does none of these things. Well, apart from the bit about invoicing the end client or recruitment agency. In fact, from what I can see, their entire business model is as follows:
1. Collect a timesheet from the self employed worker each week
2. Invoice client / agency gross (hours x rate) + VAT
3. Chase client / agency for payment
4. Once money is received, deduct their admin fee, and pay the self employed worker the gross balance
5. It’s then the responsibility of the worker to account for their own ‘self employed’ taxes (IT, class 2 & 4 national insurance)….but I could be wrong
It’s a pretty neat service and, after running an umbrella myself for several years, I can see the attraction of setting something like this up. The big USP of course being the fact Mr. contractor / self employed worker / freelancer or whatever you want to call him saves the employer’s national insurance contributions he’d ordinarily be paying with a traditional umbrella company. He’ll also pay proportionately less class 2 & 4 employee’s national insurance versus an employee’s class 1.
What I’m not totally clear on though is the self employed umbrella companies‘ liability for things such as MSC debt transfer or even IR35 for that matter. I’m also curious about how this structure sits with regards to the Agency Workers Directive. I may take a few weeks to chew on this and perhaps come back to you at a later date.
Until next time…
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Image: a great idea by Adriano Agulló
