An Umbrella Company is a tax inefficient way to operate a business
HMRC looks set to introduce legislation to clamp down on tax avoidance by some umbrella companies who have been allowing, and in some cases advising, their employees to submit false expense claims, effectively reducing the amount of National Insurance due on salaries.
A recent investigation by Radio 5 Live into tax avoidance by employers and umbrella companies claimed that many temporary workers were forced to receive most of their income in the form of expenses, rather than salary.
Many employees still believe that a dispensation held by the umbrella company means that expense claims do not require receipts.
This is not the case, and with a growing number of spot investigations being undertaken by the Revenue, it is the employee who is liable for any fines and underpaid tax as a result of fraudulent expense claims.
For most people intending to contract for a reasonable length of time, running their own limited company is far more tax efficient that using the services of an umbrella company.