Accountants warn of risk of non compliance

A specialist accountancy firm is urging contractors to wise up to the dangers of using non-compliant umbrella companies.

Danbro recently conducted a survey of contractors who had switched to them after using another umbrella company, and came across another issue of compliance which they said they thought would have been eradicated long ago.

Danbro said: "Any experienced contractor accountant knows that tax and national insurance has to be paid on the national minimum wage, regardless of the amount of expenses you put through an umbrella company. Only earnings above the national minimum wage can be offset against tax and NI when claiming legitimate business expenses.

"However Danbro's findings show that certain umbrella companies are blatantly over looking this and are allowing their contractors to pay zero tax and NI on their pay, if they are to claim the optimum amount of expenses. This may seem great to the un-knowing contractor; taking home over 90 per cent of their gross pay, but little do they know they could owe up to £3,400 at the end of the tax year. An amount HMRC will undoubtedly be recovering back from the contractor and not the non-complaint umbrella company."

In order to avoid this risk of owing thousands of pounds in tax and national insurance to HM Revenue and Customs, Danbro warned that it is imperative that contractors ensure that their umbrella company not only has the right accreditations but they are also fully HMRC compliant in their knowledge and experience. This ensures contractors stay safe from the risks of incorrect tax and NI calculations.