As a contractor working through an umbrella company, you trust the company to look after your money correctly. They will take payment on your behalf from a client or employer, process the paperwork and deduct tax, National Insurance Contributions (NIC) and so on, in return for a small fee. They will then pass on your net pay together with a payslip detailing the payments made on your behalf.
However, umbrella companies are not infallible, and although you are paying them to make sure that you are tax and NIC compliant, you are still legally responsible for accurately recording and picking up on your own financial affairs. This means that if an umbrella company makes a mistake on your behalf and HMRC gets involved, you will still be liable for any mistakes.
The most obvious mistake that an umbrella company might make is paying too much income tax on your behalf – or too little. This can also apply to your National Insurance, pension contributions or any other deductions. If these errors go unnoticed for a long period of time, it could have serious consequences further down the line.
HMRC recently introduced Real Time Information (RTI) requirements, which directly link your payroll data to the benefits system via the Universal Credit scheme. Errors made on your behalf could therefore directly affect any in-work benefits that you receive or amounts that you have to pay out, such as child maintenance.
Contractors working through umbrella companies should therefore take the time to scrutinise their regular payslips and not be afraid to ask questions if something seems to be amiss. Here are five questions that you should ask yourself when looking at your payslip:
If, after asking yourself these questions, you still have concerns about your payslip, you should take them up with your umbrella company. You may also want to speak to your employer or recruitment agency. Your employer is legally required to provide a clear and fully itemised payslip, and any legitimate company should be prepared to help you understand exactly what and how much you are paying and being paid.
It is in everyone's interests to be fully compliant with HMRC regulations, and the longer that mistakes are left unattended, the harder it can be to rectify them. Also, the consequences can become increasingly serious the longer the situation is allowed to go unattended. Don't be afraid to ask questions, or hope that by ignoring the problem it will go away. By paying attention to your payslip and taking firm, appropriate action when needed, you can save yourself a lot of trouble, as well as making sure that you are being paid what you are due.
Furthermore, understanding your pension auto-enrolment is essential, and it had specific meaning for a PAYE contractor.