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The most popular myths surrounding umbrella companies now busted

What is an umbrella company?

An umbrella company is one that employs contractors who freelance and work for various clients. These clients are the end users. The umbrella company acts as an employer for the contractors and the contractor act like its agents. The clients are the consumer company where the contractor freelances or works for a specific period of employment or till the end of a particular assignment or project.

There is a lot of confusion surrounding the umbrella companies:

While most of the countries of the world are now following the umbrella company pattern in employing workers, there is a lot of grey area regarding the field. The people who think that they know everything about the umbrella companies also are oblivious about certain facts. Because recent legislations have been amending the law surrounding the umbrella companies, a lot of facts about them are ambiguous.

There are certain myths about them doing serious rounds in the job market. But like said already, they are only myths. Here is a sincere attempt to try to demystify the concept of umbrella companies as much as possible so that it is intelligible even to the layman and therefore he can also if need be make use of the opportunities that the umbrella companies have to offer them.

Let us start busting them one by one!

Myth #1:

Certain umbrella companies can let the contractors claim more expenses than other contemporaries:

This one is a serious ambiguity and a lot of contractors are wary of the fact that probably a competing umbrella company allows its contractors to claim more expenses than theirs. This is not practically possible unless it is a crook company and it also has a share in the misgivings. Of course, this is hypothetical.

But the reality, my friend is that when you have an upper limit of say 50 pounds to spend as expenses and then claim at the end of the week or the end of the employment period, you will need to first of all spend that money during the course of the employment and then have respective receipts to prove that the expenses were made during the course of the employment and if we go through this logic, the defense that one umbrella company can allow more claims than others falls flat.

This one is just a smart campaign trick to lure the contractors from one Umbrella Company to another. We cannot think of anything else!

Myth #2:

It is okay if the receipt for expenses such as food and accommodation is not produced:

Absolutely not! whatever expenses are made, including the cost for meals, travel and accommodation while away from home in the course of employment can be claimed and unhesitatingly only and if only there is a receipt to prove that the expense has been really made and that the expense so claimed has been incurred by the contractor only during the course of employment. The Inland Revenue Department (IRD) has categorically asserted that receipts and claims for expense reimbursements must be preserved for up to five years minimum.

Myth #3:

Daily food and accommodation can be claimed when employed:

When the contractor is away from home and on assignment, he can claim food and accommodation expenses but he cannot by way of right claim daily food and drink expenses from the umbrella companies. This arises from the fact that while food and drinks are actually important for his subsistence, it is not exactly incidental to his employment. The fact is that the person will eat and drink in order to survive irrespective of the fact that he is under the employment or not.

Myth #4:

There is a way for the umbrella companies to charge more taxes from the contractors:

There is absolutely no merit in this myth. According to the legislation in the form of Managed Services Companies Guidance which is published by HMRC on tenth of July 2007, it has been laid down that an umbrella company does not fall squarely under the definition of the Managed Services Company and therefore it cannot in any way whatsoever claim any extra taxation from the salary and the allowed expenses of the contractors.

Bulk of case laws;

It is obvious that there are certain grey areas in the law and the contractors may not be able to understand all the provisos of the legislation governing the umbrella companies. Also, when the provision of such Act is read along with other culminating sections of the various other Acts, it becomes all the more incomprehensible. Therefore, it is important that the contractor does a detailed study of the material available in the public domain to get a clear understanding about the working of the umbrella companies. Also, a bulk of court cases that have been decided can act as a beacon light to the contractors in order to assert their rights if need be.

In case of any doubts or queries, you can check the following link: http://www.umbrellacompany.net/accountancy/.

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