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Why a Good Umbrella Won’t Stop You Paying Tax

Some weeks, here at UCHQ, while we spend far more time than we should wondering exactly what the intern does, we also spend a good deal of time wondering how the umbrella company industry managed to get itself into such a mess.

The tales of the umbrella companies of old, still swirl around, and there remain some cowboys out there who still like to give people the impression that using an umbrella company is nothing more than a savvy way to avoid paying tax.

It simply isn’t true. And if your umbrella is telling you it is, it’s time you used our site to find yourself a new one.

The reality is that there are two certainties in life – death and taxes – and using an umbrella company is not a way to shield yourself from either eventuality.

The way you are paid may be different from a standard wage payment, but not only should you be protected with employment laws and regulations in the same way as regular employees are (thanks to your minimum wage payment deduction), but you should also be paying all the PAYE and tax that you owe.

But still the myth persists in the Umbrella industry that somehow, paying over salary as a commission payment somehow means that you don’t have to pay the same tax as someone taking that payment as a regular wage.

We know where this stuff of myth and legend all came from. Back in the day, umbrella companies were something akin to the wild west. They would use all kind of smoke and mirrors to evade paying what was due and sometimes, bend the law to almost breaking point.

We are glad to say that has (mostly) changed, which is why we continue to welcome the calls for greater regulation of the umbrella industry. Can you save yourself some money, by putting in a greater pension contribution? Of course, but it’s only in the same way that you would if you were employed normally and made the same greater contribution.

As with so many things, the old adage rings true – if it sounds too good to be true, it usually is.

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