This article is written specifically to educate temporary workers about the claims made by some umbrella companies of being HMRC-approved. They claim that their tax arrangements or tax (avoidance) schemes are HMRC approved. HMRC never approves such schemes or the compliance of any umbrella company. HMRC does not approve any umbrella company.
Some umbrella companies present in a way that their tax scheme (please read as tax avoidance schemes) is HMRC approved and by taking the advantage of their scheme, one can receive a higher take-home pay, for example, 80% take-home pay. If you have been told something like this, chances are, it is a tax avoidance scheme, and you must stay away from it. Please bear in mind that the basic rate of Income Tax is 20%, and on top of that, you are also required to pay National Insurance Contributions - currently 15.05% of the payment. This clearly indicates that 80% take-home pay is practically not possible.
Some umbrella companies running tax avoidance schemes may present you with a choice between a ‘standard’ or ‘enhanced’ arrangement by calling it a tax-efficient scheme approved by the HMRC, to help you maximise your take-home pay in a tax efficient manner. This is nothing but a lie and an indication of a tax avoidance scheme.
You may be presented with disguised remuneration schemes wherein the umbrella company may give you some or all of your pay in the form of a loan, salary advance, grant, or annuity. The umbrella company would claim that these payments would be non-taxable and you are not required to pay them back and it would in fact increase your take-home pay. This could be nothing but a tax avoidance scheme which could very well land you in legal trouble, and you would end up paying extra tax, NIC and interest. You may also be subject to pay penalties. Seek professional advice if you are not sure whether the umbrella company is compliant with the tax rules.
HMRC is working hard to safeguard the interests of the temporary workforce by continuously educating the workers about tax avoidance schemes and by investigating fraudulent umbrella companies and initiating criminal proceedings against them.
There are also some umbrella comparison or broker websites that refer umbrella companies to temporary workers. In some cases, they are either owned or operated by the promoter of the umbrella company. Such websites refer their site visitors to non-compliant umbrella companies which are involved in tax avoidance schemes. It is advised to do complete due diligence, and thorough background checks before appointing an umbrella company, irrespective of who is referring them to you.
A quick tip to safeguard yourself: Before appointing the umbrella company, ask for a KID (Key Information Document) and review your payslips regularly (monthly).
You may also want to read our article on How to spot and avoid a non-compliant umbrella company?
You can also report tax avoidance to HMRC anonymously and they shall investigate the non-compliant umbrella company and take necessary action. You are not required to provide your name, address or email. It would be kept strictly confidential.
To report a non-compliant umbrella company, please click here. Alternatively, you can also call to report, below are the details:
You can contact the HMRC fraud hotline if you cannot use the online service.
Telephone: 0800 788 887
Outside UK: +44 203 080 0871
Monday to Friday, 9am to 5pm
Disclaimer
This article is for information purposes only. We strongly recommend taking professional advice or an expert opinion before reaching any conclusion. We have a team of experts who can help you with your queries, please feel free to review them. You can also write us an email at [email protected].