A well-known tax reporter, Dan Neidle, has concluded that a well-known mini-umbrella company scheme should be described as tax fraud, not tax avoidance. The scheme was set up to exploit the employment allowance (£3k benefit intended to support small companies who take on employees) and the flat rate VAT scheme.
Neidle’s analysis calculates that the KC approved scheme has avoided at least £50m per year in tax, and that is a minimum figure. In reality, the true cost is more likely to be £180m. This is a shocking figure, and frankly there’s still not nearly enough awareness about the perils of mini umbrella companies.
Umbrella workers will usually be completely unaware that they are in a mini-umbrella company arrangement, particularly as they will appear to be paid correctly with appropriate tax and NICs going to HMRC. However, in reality the umbrella making the payments will be frequently changing behind the scenes, which will only be apparent if you check the company name carefully on each of your payslips. Your payroll reference number will also be different with each new company that pays you.
The frequent change in company paying you matters because you will think you have continuity of employment, however you don’t. This is important for both employment rights, but also for your financial history when seeking mortgages, bank loans or other similar products.
What’s really worrying is how easily this tax avoidance scheme got away with it for so long, not to mention that it was apparently approved by a KC barrister. Many different failed tax schemes have relied on KC opinion, which perhaps should be a red flag in itself.
On top of the astonishing amount of tax avoided, these immoral schemes continue to tarnish the reputation of the entire umbrella industry which the government continues to drag its heels over regulating.
