The "Gross Payment Model" is a new payment method used by some umbrella companies to potentially avoid tax. This payment method is portrayed as a credible payment method by the umbrella company.
What happens here is that the end client or the recruitment agency pays the umbrella company believing that the contractor’s payment will be processed as employment. However, instead of processing it as employment payment, the umbrella company pays the contractor’s limited company. This brings off-payroll legislation into effect.
Because the money is paid to the contractor’s limited company, also known as a Personal Service Company (PSC), the umbrella company is not deemed as the employer, and because the client has not given the Status Determination Statement (SDS) to the worker, the tax liability now falls on the client.
It is simple and straightforward. Treat the term “Gross Payment Model” as a warning bell. The moment you hear it, take a step back and try not get involved with the umbrella company in question.
Do thorough due diligence before appointing an umbrella company. Cross-check with other companies or agencies, ask for references and do a search on LinkedIn and Google to find out what others have to say about them. Use a reliable and a trusted umbrella company.
The third and most important point, ask for a Status Determination Statement. Do not compromise on that. It is probably the most important document pertaining to this matter and to understand tax liabilities and mitigate risks.
You can also do a regular and thorough audit of every payment made using an umbrella company to ensure that the correct process is followed. The other option is you do the payroll, deduct the taxes and not use any umbrella company.
If you are still unsure, you may want to seek professional or legal help. It’s better to be safe than sorry.
If and when HMRC investigates, there are 2 things that might happen:
Disclaimer
This article is for information purposes only. We strongly recommend taking professional advice or an expert opinion before reaching any conclusion. You can also write us an email at [email protected].