Employed-PAYE and Umbrella Companies
Employed-PAYE
Here the practice will put you on their payroll. They will be responsible for deducting your tax and NI contributions. It is the easiest method from a tax perspective, however from a locumming perspective, possibly the most restrictive as many practices will be hesitant to go to this effort, especially if the locum period is short. Further more, you will not be able to claim for expenses.
Umbrella Companies
Many recruitment agencies will work together with umbrella companies and may recommend this as an option. Basically what this means, is that you will essentially be employed by the umbrella company.An umbrella company issues invoices to the recruitment agency (or client) and, when payment of the invoice is made, will typically pay the locum through PAYE (although historically the term has also been used for salary and dividend type payment structures).
There will of course be a fee for this service. One of the main selling points used by umbrella companies is the compensation for expenses. It is very important that you check this..The HMRC issue documentation to employers as a more effective way to record expenses rather than as a method of generating more income. At the end of the day, the locum will be liable should HMRC decide, for instance, that expenses have been incorrectly claimed.
‘Allowable’ expenses include: Mileage & general travel expenses, Hotel & accommodation expenses and Professional Subscriptions.
Food and sustenance is rarely allowed to be claimed, as it is the HMRC's opinion that you would eat regardless as to whether you are working or not. The exception to this rule is if you were staying away from home as part of your work.
All Umbrella Companies use the same PAYE calculations to ascertain how much tax should be paid. The only difference between Umbrella Companies will be the fee that they charge for their service, and the level of service that they offer you.
The biggest attraction to using an umbrella company is not having to sort out your own tax, and potentially being able to save on the amount of tax paid.
Disadvantages include the possibility of being obliged to only take work via the recruitment agency with whom the umbrella company is affiliated with and the possibility of the umbrella company abusing the expenses claims- which you are liable for. Check with your agency and chat to the umbrella company directly too.
It is suggested, if you are considering this option to speak to your agency and your accountant or umbrella company directly.If you are struggling to understand what is being offered, seek further independant advice.
Note:
The information supplied on matters of PAYE and Umbrella companies provide a general overview of the situation. Information has been obtained primarily from the
Inland Revenue.It is strongly recommeneded that locums consult the
Inland Revenue, as well as qualified persons such as accountants and tax consultants for further information.
