HMRC warns of tax avoidance schemes via umbrella companies
Friday, August 24, 2018
Non-compliant umbrella companies have become increasingly popular in the press due to their claims to save people tax, but in fact are tax avoidance schemes. Whilst most umbrella companies work within the tax rules, there are also many that claim to be a ‘tax efficient’ way of reducing your tax liability and keeping more of your income.
This can leave you in a high-risk situation because you are responsible for your tax affairs and National Insurance contributions, so you could end up having to pay additional tax, interest and potential penalties.
Signs of a tax avoidance scheme:
- They claim they will help you keep more of your income and reduce your paperwork
- They will tell you that the payment is non-taxable because it doesn’t count as income as it’s a loan, credit, or something similar
- The company may tell you that you must sign up to these arrangements if you want to work for them
- The company promises that you can keep 80, 90 or 95% of your wages and be tax compliant
- Only a fraction of your salary is paid through payroll and subject to PAYE
- You are paid using a loan, credit or investment payment and the company claims this isn’t subject to income tax or National Insurance contributions
- The payment from your umbrella company is routed through various companies before it comes to you
If any of these apply to you, make sure you withdraw from the umbrella company and speak to HMRC as soon as possible.
We want to reassure all our candidates that we never work with non-compliant umbrella companies, we have over 60 fully approved companies that we work with – so by working through us, you will avoid the risk of a future tax claim.
Read the HMRC guidance in full here