According to an announcement issued by HMRC, some umbrellas are non-compliant and operate tax avoidance schemes; workers engaged by such firms risk huge future tax bills (e.g. the Loan Charge), whilst recruitment businesses engaging such umbrellas risk reputational as well as financial damage.
According to HMRC, these schemes involve untaxed payments being made to workers by a non-compliant umbrella company to increase their take-home pay.
HMRC’s full article outlines some of the steps that recruitment businesses can take to protect themselves, but precious little practical help for workers who might be unwittingly in such a scheme.
Workers – check your tax status!
If you are concerned, then the first step to take is to check your tax record with HMRC. It’s very straight forward to do online by setting up your personal tax account. This brings together the tax records that HMRC holds in relation to you and your income.
The records held by HMRC should match those on your payslips. Your employer should be the same company that your contract is with. If there are any discrepancies with the tax and NICs held by HMRC vs the amounts on your payslip then there might be something amiss. Ask your contractual ’employer’ for an explanation, or seek additional advice. Email us at email@example.com if you need more information.
Recruiters – you have responsibilities!
Recruitment agencies that use workers engaged via an umbrella are reminded of their responsibility to understand:
- how the workers are engaged;
- who is responsible for paying them;
- how they get paid.
If the umbrella company operates a tax avoidance scheme, the recruitment business may incur a penalty for enablers of tax avoidance. The cost is potentially very hefty, 100% of the fees receivable in consideration for any actions taken which enabled the arrangements.
Furthermore, it should be remembered that recruitment businesses are responsible for PAYE on payments made to an offshore umbrella company worker, due to the offshore intermediaries rules.
What to do if you suspect tax avoidance
If you believe that an umbrella (or any company for that matter) is not adhering to tax rules then you can report the details to HMRC.
You can read HMRC’s full article here.