Gross Earnings as a Contractor working under an Umbrella com

[MITM2]

My first job coming into the UK last year was in a contract position. The Recruiting Agent had asked if I was going to take on the role using my own company. I told her that I did not have a company of my own so she recommended an Umbrella company who she gave my contact details to and who later contacted me. I then worked in this contract role under the auspice of the umbrella company for well over 12 months.

The rate was £10/hr, 9 hrs/day, 5 days/week so I was making £450 per week. However, I was also spening £100 on my weekly train ticket as the site was outside London. When the Umbrella company received the £450 each week, they removed the £100 spent on transport before applying the necessary taxes (NI, Income Tax, etc.). This £100 was listed as 'Reimbursed Expenses' on my weekly payslips.

As such, I had, up till this time, been calculating my Gross Earning to be £450 multiplied by the number of weeks I had worked in this role. However, I was recently informed that the Home Office will NOT recognise my Gross Earnings as £450 pw but as £350pw multiplied by the number of weeks for the period I am claiming points for.
If I cannot claim this £100 per week which I earned and had expended on my weekly tickets, this would mean £4,800 which I earned but will not be able to claim as part of my gross earnings!
Please is there anyone out there who has worked in a similar arrangement and has successfully applied for an extension?
How was the Gross Earnings presented?

To rephrase the question being asked, what does the Home Office consider as 'Gross Earnings' for someone who has worked under an Umbrella company in what is described as 'overarching contract'?

Overarching Contracts involve tax reliefs for travel expenses.

Thank you very much in anticipation while I look forward to hearing from anyone out there (who worked in a similiar arrangement and has successfully obtained an extension) on what HO considered as the 'Gross Earnings'.

Regards,

MITM2

[MITM2]

Anyone here with an answer to this please?
Many thanks.

MITM2

[Vanadil]

I'm afraid that everything you have written is 100% correct. Most Umbrella companies have a very loose, if any, understanding of immigration an its requirements and so will recommend the wrong choices for you. There are a few Umbrella Companies out there that do specialise in helping those such as yourself in the UK but most Umbrellas unfortunately will allow you to claim for too many expenses and ruin your chances of obtaining your next immigration status

I'm sorry to bear bad news but if you would like more information on companies that can help you please PM me and I will send you a few links.

[MITM2]

Dear Vanadil,

Many thanks for the feedback...really appreciated.

It appears however that new HSMP arrivals who may end up or are already on-ground working under Umbrella companies in 'overarching contract roles' need to really, really be wary or BEWARE?!

That said, however, is it that HMRC has done away with the concept of tax relief for travel expenses for overarching contractors? Please see below some excerpts from an HMRC document for instance...

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Umbrella company

In an umbrella company the worker has an overarching employment contract with the company. The worker is not a director, nor does he own any shares in the company. The worker works for end clients but rather than working directly for them, he provides his services through the umbrella company. In some cases the worker sources engagements directly, and in other cases an agency will source engagements. In the latter case the end client pays the agency, which deducts its fee and in turn pays the umbrella company for the worker’s services.

The umbrella company will pay a salary to the worker along with any expenses due and deduct income tax (via Pay As You Earn (PAYE)) and both employee’s and employer’s NICs. The umbrella company will retain its fee, a weekly or monthly sum (generally not charged when the worker is on holiday or between assignments) and may also retain a regular sum to be paid later as holiday pay. Other deductions might
include optional services such as insurance.

Anything the umbrella company pays the worker, for example net salary, expenses and holiday pay, as well as any income tax deducted under PAYE and both employee’s and employer’s NICs is funded out of the gross sum the worker earns since the company does not normally have any other source of income.

The travel expenses rules state that workers are entitled to tax relief for travel between their home and a temporary workplace, but not a permanent workplace. A temporary workplace is somewhere the employee goes only to perform a task of limited duration or for a temporary purpose.

A workplace is a permanent workplace if the employee:
• goes to the same workplace in the course of a period of continuous work
which lasts, or is likely to last, for more than 24 months; or
• goes to the same workplace for all or almost all of the time for which the
employee is likely to hold, or continues to hold, the same employment.
3.9 If either of these criteria applies a worker would not be entitled to tax-relief for travel expenses between home and work.
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In my case, I was in this overarching contract role for about 12 months or so....lesser than the 24 months mentioned above.

The question now then being that if this arrangement does exist and has NOT been cancelled by the HMRC, then how can ALL of the monies 'earned' weekly not be claimed as my 'Gross Earnings' more so as

1. receipts for all the travel tickets purchased were genuinely handed over to the Umbrella company and

2. it is the gross money earned by the contractor or worker that the Umbrella company actually disburses...with them charging a fee for each pay cycle processed

End Client--->Agency------->Umbrella Company------------>Worker

The end client pays the agency for the work done by the individual worker. The agency takes its fee and pays the umbrella company for the individual’s services. From the amount paid by the agency the umbrella company will deduct its fee and the income tax and NICs (employer’s and employee ’s NICs) before paying over the net amount to the worker.
The worker may obtain engagements through several agencies, all of whom pay the umbrella company for the worker’s services.

Thank you once again while I look forward to hearing from you (and other contributors) on what appears to be a quite technical matter.

Regards,

MITM2

[Fairychild]

I had my own limited company and also found out too late that any expenses I claimed does not count towards my earnings. If you still have time to make up then keep your expenses back and don't claim them until the you have earned enough over a 12 month period. I manage to pay myself a rather big dividend in the last month and even though my company was in a slight loss, it still counted towards my earnings (gross dividend and gross salary).

[Vanadil]

Limited companies are also almost a definite no no for those on any type of immigration status. It's possible sure, but you're playing with fire in terms of your earnings and that’s never a good idea.

Best thing to do is work on a Tier 1 or 2 for 5 years happily ticking along with an umbrella company ensuring that you have enough assessable billings and then once you've got ILR, crack open a Limited company and maximise your earnings. Can be frustrating for those first 5 years but at least you know where you stand.

Unfortunatley the above doesn't get told to those with Visas, and Agencies are all to quick just to say "Just open a Limited company, you'll get loads of money". *sigh* I'm trying to educate them but alas I am just 1 man!

[ChetanOjha]

Limited companies are also almost a definite no no for those on any type of immigration status. It's possible sure, but you're playing with fire in terms of your earnings and that’s never a good idea.

Not necessarily. Limited companies has nothing to do with the way people run it. I am running a limited company but had no problem in getting extension. Ok i didn't tell you that i pay myself decent salary to make sure I meet the extension creteria of 40K and also paid proper tax . But in the end it's worth it.

Best thing to do is work on a Tier 1 or 2 for 5 years happily ticking along with an umbrella company ensuring that you have enough assessable billings and then once you've got ILR, crack open a Limited company and maximise your earnings. Can be frustrating for those first 5 years but at least you know where you stand.

You don't need to do that. You just need to plan in advance atleast one year for your extension, if you are opening limited company. If you cannot plan for your own existance on Tier-1 what's the point going shifting on Tier-1 and opening ltd company

Unfortunatley the above doesn't get told to those with Visas, and Agencies are all to quick just to say "Just open a Limited company, you'll get loads of money". *sigh* I'm trying to educate them but alas I am just 1 man!

Yes, that's the irony. people think opening company will get loads of money coming in. They forget that they have to make proivision for the very visa they are on. Unfortunately, when people think they can claim all load of expenses(which is very tempting) they forget something is waiting silently for them. Frieghtning huh...better pay all genuine taxes...hire a good accountant who can advise your properly and you won't have much problem. There are many accountant who will advice you on saving lot of money(by taxes or some other way) but then people sleep restless...is it worth it?

[Vanadil]

Mmm I must say I do agree. If you are able to run a Ltd well and as you say, make provisions and have a good accountant then there should be no problem.

I suppose your in the same boat either way... either you get good advice from an accountant / umbrealla company or you don't

[Sushil-ACCA]

Paying £250-300 pa to an accountant and running company is best with less tax to all other form of business.

[ChetanOjha]

Paying £250-300 pa to an accountant and running company is best with less tax to all other form of business.

£250-300 PA??? I am paying £119 pm to accountant.

[Vanadil]

I was also under the impression it was between £100 - £200 per month. £119 is actually quite a good price.

[MITM2]

I'm afraid that everything you have written is 100% correct. Most Umbrella companies have a very loose, if any, understanding of immigration an its requirements and so will recommend the wrong choices for you. There are a few Umbrella Companies out there that do specialise in helping those such as yourself in the UK but most Umbrellas unfortunately will allow you to claim for too many expenses and ruin your chances of obtaining your next immigration status

I'm sorry to bear bad news but if you would like more information on companies that can help you please PM me and I will send you a few links.

Hi Vanadil,

I have not made a 'claim' in the true sense.
The travel expenses, Employers Social Security and Umbrella company Admini Fee were the only thing removed from the overall contract earnings before taxes were applied.
Of note also is the fact that it is out of this my overall contract earnings that the Umbrella pays the 'Employers Social Security' and deducted their Administrative Fees for each paycycle processed.
And there is actually such a thing as tax relief on travel expenses for workers in 'overarching contracts'.
Now, while there is an ongoing debate about this, HMRC has not cancelled this to the best of my knowledge.

Lastly, there is also an Invoice Reconciliation portion on each of the weekly payslips which actually shows the number of hours worked that week week multiplied by the hourly rate.

Is this not what constitutes the Gross Earnings before Tax?

Thank you once again while I look forward to your reply and that of anyone else who has actually worked under an Umbrella company under a similar arrangement.

MITM2

[MITM2]

Hi All,

Please is there anyone out there who's gone through the same scenario who can categorically clarify the situation based on experience?
Thank you very much in anticipation.

MITM2

[MITM2]

Hi All,

Please is there anyone out there who's gone through the same scenario who can categorically clarify the situation based on experience?
Thank you very much in anticipation.

MITM2