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taratill
taratill, Solicitor
Category: Employment Law
Satisfied Customers: 6339
Experience:  15 years experience of advising on employment law matters
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there, I own and operate a web development company here

Resolved Question:

Hi there,
I own and operate a web development company here in the US. We will hire internationally -based contractors to work on specific projects around the world, whether it be on or off-site. We have a contractor who permanently resides in Germany but has just recently taken a temporary, 6 month, on-site position with a client in the UK.
This UK client found our company/contractor through a UK-based umbrella company. We are currently in the contract negotiations stages, and I don't seem to be getting anywhere with them. Besides the fact that their contract is 24 pages, their wording is extremely confusing, and they either don't understand our questions, or they are intentionally doing so.
One of my questions is regarding a clause from their contract which states the following:
"Umbrella Company" means a supplier which:
(a) engages one or more consultants under a genuine overarching contract of employment;
(b) treats all income generated by the consultant(s) so employed as employment earnings; and
(c) accounts to HMRC for full PAYE and National Insurance contributions in respect of all employment income
earned by the employed consultant(s)."
As I understand it, this means that they are treating us/our contractor's pay as "payroll" and deducting the above mentioned taxes and liabilities at their end before the final amount is sent to us/the contractor. Is this correct?
I don't see a link to attach a file, otherwise I'd upload the contract :)
Thanks in advance!
Priscilla
Submitted: 2 years ago.
Category: Employment Law
Expert:  taratill replied 2 years ago.
taratill :

Hi Priscillia, is it possible to send over the exact wording of the clause?

Customer:

does this work? It's the first 5 pages: http://pdog.me/1Eb6iBl

taratill :

HI i am afraid not. Is the wording of the relevant part as you have typed in the question?

Customer:

"Umbrella Company" means a supplier which:
(a) engages one or more consultants under a genuine overarching contract of employment;
(b) treats all income generated by the consultant(s) so employed as employment earnings; and
(c) accounts to HMRC for full PAYE and National Insurance contributions in respect of all employment income
earned by the employed consultant(s).

Customer:

yes, let me open the contract in text form so that I can copy/paste more context

taratill :

In essence is the question you are asking whether the individual will be liable to pay tax and NI in the UK or whether it will be deducted at source?

Customer:

exactly! That is the question. My apologies for the vagueness

taratill :

Ok unless the person is engaged as an employee of the company the client would not deduct tax and NI from source. The contractor or the umbrella company if it pays the contractor is liable to make the payment to HMRC. The clause spells this out as the word 'account' in paragraph C places an obligation on an umbrella company (if one is used) to pay tax not the client.

Customer:

correct, and thank you. However...(for the purposes of avoiding confusion, let's combine my company and our contractor into one term = Contractor), because the Contractor is being paid by the UK-based umbrella company, and the UK -Umbrella company is being paid by their client, the client never touches the Contractor's payment directly. So this *would* mean that the umbrella company is deducting at the source.

Customer:

I assume it's for any possible future tax liabilities that could arise

taratill :

Yes that's right. Again this will depend on the relationship between the umbrella company and the contractor. If the contractor is a subcontractor then the Umbrella company will not deduct tax at source and the contractor will be liable to HMRC for tax and NI payments.

Customer:

ok

Customer:

that answers my question!

Customer:

Thank you :)

taratill :

No problem all the best with this. Do please remember to take the time to rate my answer. Thank you and do come back to me in the future if you have any further questions.

Customer:

Will do! You were very helpful! Thank you

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