1) I have heard that Umbrella schemes no longer work for lower paid workers?
No, this is not true. However, there has been much speculation in the media about changes to legislation. HM Treasury published its findings from the consultation process in July 2010 which confirmed its intention to proceed with the proposed amendment to Regulation 31 of the National Minimum Wage Regulations. As a result, with effect from 1 January 2011, the proposed amendment will effectively prevent travel expenses from counting as income for the purposes of calculating whether a worker has received the National Minimum Wage.
This proposed change will have an adverse impact on employment businesses which operate a salary sacrifice scheme at or around the National Minimum Wage and low-paid employees will also see a significant reduction in their take-home pay.
In December 2010 there was a judicial review on the subject and the most important aspect stated in the summary judgement handed down was that - “If the worker himself met the expenses out of total income, and properly deducted them under s338 ITEPA 2003, his income for income tax and NIC purposes would be the net amount after deduction, but it appears that the minimum wage would remain the amount of total income”.
Given all this speculation, none of this actually applies to Backoffice as our existing simple and efficient expenses policy and verification process ensures that those employees working under our successful and compliant PAYE Umbrella product whose net hourly wage rate remains (even after legitimate expenses) above the national minimum wage, can continue to use our scheme with confidence.
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2) At what rate can I be paid and still claim expenses under an umbrella scheme?
This is very much dependent on the employee’s personal circumstances however, there is a threshold at which these schemes become financially unattractive to all concerned.
A recent judgment by Mr Justice Kenneth Parker has signalled the end of salary sacrifice arrangements for low paid workers with particular regards to travel expenses. However, Backoffice have never operated a salary sacrifice scheme and have always operated a genuine legitimate expenses policy for tax relief purposes under s338 ITEPA 2003, which is legally available to all employees (for expenses incurred by the employee). This can legitimately be used to reduce the amount of tax on which NIC is calculated, but not reduce a worker’s total net remuneration to below the minimum wage threshold.
As a worker earning circa £7.00 per hour and dependent on legitimate receiptable expenses our PAYE umbrella scheme is viable and below this level there are a range of alternative products.
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3) How much do the products cost?
The maximum fee for any one product scheme is £21.84, but as this is tax exempt, this means that it will become £17.47 after tax (if you are a 20% tax payer) and £13.10 if you are a 40% tax payer. This net cost includes Tax Enquiry Insurance (TEI) to give you protection from any HMRC investigations which is combined with high levels of indemnity and liability insurance so there is protection for you, the public and your employer when you are working. For full details of costs for our payroll services please see the costs page.
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4) Am I responsible for paying my own tax and do I need a separate accountant?
No, Backoffice ensure the correct contributions are made to the authorities on your behalf and this is clearly shown on your own payslip. You do not need another accountant and we all do the calculations on a weekly basis so that you see the benefits immediately as opposed to at the year end. We will also set up the class 2 contributions for national insurance on your behalf. This means you will pay the required minimal amount each week to HMRC in order to boost NI contributions so that you qualify for state benefits.
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5) How much will I get paid?
Backoffice has simple to use online calculators for individual temporary worker and contractors that will work out how much better your net take home pay can be compared to PAYE for each of the product types we offer and depending on what tax scheme you are using. Simply use this calculator (or the one at the bottom of the homepage page) and we can show you how much net pay you will approximately take home.
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6) Do any of the products have any effect on my tax credits?
No, if anything the scheme will improve your tax credits as all credits are based on your taxable income. By using the work related expense claim forms you are reducing your taxable income and this should be reflected by a possible increase in the credits received. Contact your agency, your employer or Backoffice for more assitance and explanation.
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7) If I am in receipt of private pension payments; do the products have any effect on these?
No.
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8) Do I have to submit an expense form?
Yes - if you want to see an increase in your net pay.
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9) What if I forget to submit expenses?
If we receive backdated claims we will process these on your behalf, but this is not a practice we usually follow or encourage.
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10) Why is my payslip so detailed?
Backoffice has to show the entire expense process from gross income, offsetting expenses and other costs to arrive at the lower taxable amaount. From this your NET pay is calculated and this should be higher, due to less contributions being made and work related expenses being reimbursed.
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