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Taxation: Deductions

Question for Treasury

UIN 187263, tabled on 26 April 2021

To ask the Chancellor of the Exchequer, what steps he is taking to ensure umbrella companies comply with legislation on the deduction of employers’ taxes from contractors’ pay.

Answered on

29 April 2021

Like all employers, umbrella companies are responsible for paying employer National Insurance contributions (NICs) where they are due. Employers cannot, by law, deduct employer NICs from an employee's gross pay. The payment of employer NICs out of the umbrella company’s fee may be shown on the same payslip as deductions, such as Income Tax, from the employee’s gross pay, so that it can look as if an individual is paying the employer NICs, when this is not actually the case.

New rules came into force from 6 April 2020 requiring all agency workers to be given a Key Information Document by an agency before agreeing terms, including when the agency worker is engaged through an umbrella company. Key Information Documents set out details about the engagement, including rates of pay. This allows workers to see how deductions and fees are made through the labour supply chain and how this affects their gross pay and net pay.

When set up and operated correctly, umbrella companies comply with tax and NICs legislation. Umbrella company employees who believe that an umbrella company is not complying with its tax or NICs obligations can report it to HM Revenue and Customs: https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc.

Answered by

Treasury
Named day
Named day questions only occur in the House of Commons. The MP tabling the question specifies the date on which they should receive an answer. MPs may not table more than five named day questions on a single day.