Green Lantern Contracting – Legislation
Temporary Workplace Expenses & Umbrella Companies
During the course of Umbrella Company employment, as and when performing assignments on behalf of an umbrella company at a temporary workplace, most employees incur costs. As an employer, the Umbrella Company will usually ensure that you’re costs are covered. These expenses are usually “business expenses” that you have incurred wholly, necessarily and exclusively in the performance of your employment duties, and only those expenses that meet this criteria can be claimed.
The individual’s permanent place of employment is stipulated in their contract of employment. It’s the nature of contracting that it’s likely that the individual will be provided a number of assignments to perform as an employee working at various different locations – typically working with a recruitment company. There is legislation in place which allows for the cost of the travel and subsistence associated with the temporary workplace to be reimbursed, without being subject to PAYE and NI. It’s in important for the indiivudal to ensure that accurate records and receipts are kept, as the pay you receive from the Umbrella Company will be a mixture of taxable funds (your salary) and expenses and those expenses are tax exempt.
It is possible to claim certain travel to and from a temporary place of work as long as all circumstances allow for this. Expenses associated with traveling to or working at a temporary worksite are allowable for up to 24 months at one site provided it is not expected to be at that site for more than 24 months, or less than 40% of time is spent at a specific site. It is also important that that the assignment is not to be the only one performed with the employing company.
The rules for tax relief on travel are complex as previously stated and our experts will always be happy to provide further assistance. Further details, and a large number of examples, are available in HMRC booklet 490 that you can download from the Internet or obtain from a Revenue office.
Managed Service Company Legislation & Umbrella Companies
In the 2006 Budget Statement the Chancellor announced that it would consult on action to tackle Managed Service Companies (MSCs). Draft legislation was issued in December 2006, and following consultation became law on April 6th 2007. MSCs are more commonly known as Composite or Managed Limited Companies and they are used by workers to provide their services. The identifier of a company such as these is that the individual concerned is not in business on his own account, and so the company in place is disguising employment income – which the employer should be paying full PAYE and National Insurance Contributions on. The Government had believed for a long time that IR35 legislation was not properly being followed by MSCs and therefore there was a large amount of tax and NI being avoided by the use of dividend payments. The MSC legislation effectively means that those people working in MSCs will pay tax and national insurance contributions at the same level as other employees barring them from any benefit associated with dividend payment.
Umbrella Companies are explicitly outside of the scope of this legislation. Those individuals working through an umbrella company pay full PAYE and NI on their entire income, and dividend payments do not feature as part of the service. This makes them the safest option for contractors, as they will not be subject to an MSC challenge. Likewise, the risk of unpaid tax debt being transferred to a recruitment company is also removed by using an umbrella company, making them the option of choice for many recruitment companies.
Agency Worker’s Regulations & Umbrella Companies
AWR was introduced in October 2011 with the aim of protecting the rights and interests of temporary workers in the UK and ensures that they are treated as well as their permanent employee counterparts.
Those temporary workers who are in business in their own account will not be included within the scope of the legislation. This includes self-employed people and contractors working through their own limited companies. Green Lantern works with an established accountancy practice to assist contractors in this way, and as such, will be happy to discuss those contractors who feel that might be the best option.
For those contractors working through an umbrella company, consideration must be given to how that umbrella company will work through the recruitment agency to ensure that the protection afforded to the agencies is provided.
There are two separate ways of an umbrella company working to ensure that the AWR is complied with. Green Lantern will be mostly operating the comparative pay model, which uses communication with the recruitment company to ensure that the necessary entitlements are provided to the temporary worker. These includes some rights, which are available from day one and are the responsibility of the hirer, and others which become relevant after a 12 week qualifying period, mostly relating to pay and annual leave entitlement.
Those individuals who are operating through this traditional umbrella company, will be provided with a full contract of employment. At the start of the assignment, we will speak with the agency involved and ask them if they are providing key entitlements that are required. This will be simply a few questions, including relating to pay and conditions of permanent employees. Our contracts of employment are robust, overarching and provide all employment rights, and our full employee handbook provides further policies and guidance to our employees. If, at the start of an assignment, we are unable to get the requested information from the recruitment agency, we will remind the agency several times up to the point where the 12 week qualifying period is reached.
If it is not appropriate to operate the comparative pay model explained above, it is possible that Green Lantern will operate the pay between assignments model, usually referred to as Swedish Derogation. This model means that the umbrella employees are not entitled to receive pay and entitlements after twelve weeks that mirror their permanent counterparts, but in fact are entitled to receive a minimum amount of pay between their assignments, whilst seeking further contracts. If this model is being implemented, we will assist the individual with their search for assignments, and will ensure that the minimum between assignment pay stipulated in their contract of employment is provided. If an individual resigns between assignments, they will not be entitled to payments, and the pay amounts themselves will vary depending on the amount of time off assignments. As the comparative pay model will not be operating in this case, we would not request information from the recruitment agency.