Have you fallen victim to the two-payment trick?

In the world of umbrella contracting, the “two-payment trick” refers to a method that some fraudulent umbrellas may use to optimise their attractiveness to contractors.

Carry on reading to find out if you’ve fallen victim to the two-payment trick, as well as what to do next.

What does the two-payment trick look like? 

In a standard arrangement, the client pays the umbrella company for the contractor’s services, and the umbrella company then pays the contractor a salary after deducting taxes, National Insurance contributions, and other expenses. The contractor is subject to Pay As You Earn (PAYE) taxes, similar to regular employees.

However, umbrella companies engaging in the two-payment trick will split your payment into two parts to reduce tax liability. Your first payment will typically be lower than your actual contracting fee (aka applied at minimum wage and taxed through PAYE). The second payment will essentially ‘make up’ for the missing amount from your first payment and will be misleadingly labelled as an expense reimbursement, bonus, or similar. However, this payment will have no tax applied – meaning HMRC will eventually come knocking on the door. Not ideal, eh? 

When should I be suspicious? 

Unfortunately, this is just one of the many fraudulent practices that can occur when you work with a non-compliant brolly. 

Overall, if you notice that you are getting paid more than you should be (80% take-home pay or above is usually a red flag, for instance) or that your umbrella company is offering money that seems too good to be true – it probably is. 

More often than not, contractors aren’t even aware they’re being taken for a ride. That’s why it’s important to stay weary and always do your research before signing up to work with a new umbrella. 

While initially you’ll feel like you’ve hit the jackpot with more disposable income than ever, HMRC will ultimately catch on and you’ll be the one responsible for paying back the tax you’ve avoided (consciously or not).  

I think I’m a victim of the two-payment trick, what should I do? 

If you think your umbrella provider is engaging in the two-payment trick, you should report it to HMRC as soon as possible and move to a complaint umbrella. 

Remember, Mint is Professional Passport Accredited and we pride ourselves on providing excellent customer service to every one of our clients. 

Give us a call on 020 3967 6846 to find out more about working with us!