The tax-efficiencies come from having genuine business expenses allowances that can be offset against tax. But this can only work and be legal if the allowances are negotiated with and agreed by HM Revenue and Customs.
Without an HM Revenue and Customs approved Dispensation, an umbrella company would find it difficult to reimburse business expenses efficiently to its employees.
The company employs you directly and calculates and deducts tax and National Insurance Contributions at source. That makes your work completely consistent with the objectives of HM Revenue and Customs and IR35. So, you have the peace of mind of knowing you are legal. The umbrella company will also bill clients and provide administration support and payroll.
Some companies, like Tarpon, have matured into full-service employment benefits companies, offering employees an amazing range of benefits and services. In the case of Tarpon, these all come as standard.
A word of warning...
Composite companies and umbrella companies are often confused, and some composite companies deliberately give the impression that they are umbrella companies. The two types of company are very different.
- In a composite company you are almost certainly part of a tax avoidance scheme and will come under the spotlight of HM Revenue and Customs. For more information on composites, click here.
- In an umbrella company you are completely legal and IR35 compliant. You have employee status and pay tax and National Insurance Contributions at source through PAYE.
To speak to one of our tax experts call 0845 643 1580.