HMRC have issued a “spotlight” warning to agency workers and contractors, providing them with information about potential tax avoidance relating to using umbrellas. (Spotlights are HMRC’s series of publications about potential tax avoidance.)
In this latest edition, HMRC explain how some umbrellas benefit from operating disguised remuneration schemes and how these might increase your net take-home pay. These usually operate by diverting a portion of your income via another mechanism, such as a ‘loan’, in order to reduce the taxable pay. Some of the important points covered include:
- You are responsible for your tax affairs and paying the correct amount of tax and NIC on your income;
- You should check your payslip matches the income received into your bank, if it doesn’t then something is amiss;
- Referrals to umbrellas via comparison websites might not be trustworthy;
- Key Information Documents, contracts and other paperwork;
- How to report a scheme to HMRC, via their anonymous online form here.
It’s worth checking out their guidance even if you don’t think you are using a dubious umbrella or at risk of choosing one.
There is one point which is contradictory – HMRC state that we are each responsible for our own tax affairs and for paying the correct amount of tax. Yet they also state that under PAYE regulations your employer has an obligation to deduct tax and NICs from your employment income on your behalf. The guidance goes on to say that where this deduction of tax and NICs does not happen HMRC may recover the tax directly from you (rather than your employer).
Not only is this contradiction fundamentally unfair, it can also have devastating consequences as experienced by victims of the loan charge in recent years. So if you are an agency worker or contractor and are considering being paid by an umbrella company, please ensure you read and understand all the information before you sign up to anything. Importantly you must keep your own copy for your records and not rely on website links which may be changed at a later date. If you are unsure and need advice, please contact us firstname.lastname@example.org