How umbrella companies work

ok, this seems to of popped up a couple of times before. I am an IT contractor and basically my german based agency are pushing me towards using an umbrella structure called Albany in the Uk. I believe Albany are good at what they do, however I get the feeling they are for newcomers/clueless people. I cannot see any value in using them and paying them 5% of my income. My understanding is they set you up with a tax number and a local accountant. I have already done both, however my agency have told me that I need a DE number in order to get paid, and that is why I must use this umbrella co as I am an international contractor (irish). I think that this is a crock of nonsense and that they are pushing me to use this umbrella structure out of sheer laziness on their part.

It also occurred to me that the english company is a UK registered company and they would have no DE number to pay German taxes ! of course !!

So can someone please tell me do I need to have a DE number in order to get paid ? My agency are adamant about this, however my local accountant says otherwise. Although I am convinced there is some behind the scenes back handers between the two agencies.

I also have an offshore company, can I use this ?

cheers,

action

I can't answer the questions but 5% of your income for umbrella company fees is too much. Way, way too much. If you can use a UK umbrella company there are plenty which charge fixed monthly fees which will work out much cheaper unless you're earning a pittance.

i do not mind using one really, but 5% is alot of my income, and it is not pittance, that is why I am trying to get out of it. I tried to go for 3% but they would no budge. so i am trying to talk my agency out of using them for my contract. it almost like it is set in stone that i have to use them. I am really not happy about it.

I don't see why your agency has any say in the matter. The fact that they are trying to interfere would be enough for me to walk away from the offer. They sound totally unprofessional and I'd have no confidence in their advice.

Agencies will often refuse to deal directly with you, because if you commit tax sins the Finazamt will try to get the money from them. These umbrella companies are expert in making sure they have no liability by forcing you to do the right thing, and also have some pseudo legal tax saving schemes.

Albany and PSB do the same thing. They split your income into 2 parts. One goes to you, is your income and is taxable. The other bit goes into a trust fund, and is tax free as long as it stays in the trust fund. The trick is to realise the trust fund in a tax efficient way. For example when you return to the UK you use the trust fund to pay yourself an almighty "job well done" bonus, which is tax free under UK tax law. Or go and live in Monacco while you realise years of accumulated money in the trust fund.

Agencies may refuse to pay you except via an umbrella or service company, but if they try to force you to sign up to one particular one, especially when the rate is so high, they are suspect IMO. Last time I used one I was given a list of a dozen umbrella companies that the agency 'thought might be suitable'.

The trust fund scheme sounds like a good way to end up owing the taxman a lot of money. Good luck to anyone who tries it but I wouldn't touch that with a barge pole.

With some of my clients I have of course experienced the use of PSB, Albany or similar tax savings systems. However, for personal and professional curiousity I would like to learn more about them. Since googeling did not help me much there, can anyone please provide me with the links to the providers/companies themselves? That'd be grand!

Cheerio