10 January 2024 , 09:52
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Millions of temporary workers are being urged to check their payslips after the National Insurance cut last week.
On January 6, National Insurance for employees - so people who are paid their wages via PAYE - was reduced from 12% to 10%. The move means you now pay 10% of your income in Class 1 National Insurance contributions on earnings between £12,570 and £50,270 a year. The Government said the move would give the average worker on £34,500 a tax cut of £450.
However, 1.6million of the UK's flexible workers - who are paid through PAYE - are being urged to check their payslips to see if they have also been given the tax cut. The umbrella company compliance specialist, PayePass says many flexible workers do not realise they are also entitled to the cut. Flexible workers usually include umbrella workers, zero-hour contract workers and those engaged via employment agencies.
Payepass CEO Julia Hermode explained that the majority of these individuals operate under contracts of employment despite being temporary workers. Historically, this has often resulted in confusion among temporary workers, who aren’t always sure what they are legally entitled to.
Julia added: "The fact that most temporary workers will also benefit from this welcome tax cut has flown under the radar to a degree. This boils down to long-standing confusion among temporary workers – and often their employers – about their employment status and, in turn, the rights and benefits they receive.
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Julia explained that a big issue within the umbrella industry is businesses disguising themselves as umbrella companies when they are really tax avoidance schemes.
An umbrella company is a business often used by recruitment agencies to pay temporary workers. In the majority of cases, the umbrella company employs you and pays your wages through PAYE. However, it does not find work for you - that is done by the recruitment agency.
This means the umbrella company is basically your employer and will pay you, but the work you carry out is for the recruitment agency's client. If an umbrella company promises it can increase your take home pay - so you keep 80%, 90% or even 95% of your wages - but will still be tax compliant is potentially a tax avoidance scheme.
This can leave you in a high-risk situation because you are responsible for your tax affairs and National Insurance contributions, so you could end up having to pay additional tax, interest and potential penalties - even if you did not set out to try to avoid tax.
Julia said: "In the umbrella industry, many tax avoidance schemes disguise themselves as compliant umbrella companies. On the face of it, they seem like a genuine umbrella company, but when you dig beneath the surface and scrutinise the payslip issued, they’re a tax avoidance scheme. This poses a massive risk to workers, who could be left with an eye-watering future tax bill from HMRC.
“In fact, along with checking to make sure that you’re benefiting from this tax cut immediately, whether your payslip reflects this change could also signal if you’re operating through a tax avoidance scheme. If you aren’t paying less National Insurance but your gross pay rate has stayed the same, then you have questions to ask.”