Appointing a non-compliant umbrella company could lead to a professional disaster. Something that can have serious financial and legal implications on you. They can damage your reputation as well as hurt you financially.
It is essential to know how to differentiate between a fully compliant umbrella company and a non-compliant or dodgy umbrella company involved in tax avoidance. It becomes even more important if you are new to contracting or if you are someone who has never used an umbrella company in the past.
This is because non-compliant umbrella companies mostly use tax avoidance and disguised remuneration schemes to pay their employees. By engaging a non-compliant umbrella company, you also become a part of the supply chain of the scheme.
Also read: List of Umbrella Companies
What is the meaning of a non-compliant compliant umbrella company?
Non-compliant umbrella companies are those who indulge in tax avoidance using disguised remuneration schemes. They are unethical, illegal and fraudulent.
How to spot a non-compliant umbrella company?
Non-compliant umbrella companies would usually offer you a higher than usual take-home pay. They will market themselves as highly tax-efficient (please read as “experts in tax avoidance”). They would often claim to retain 80% of your earnings after tax in a safe and compliant manner.
Note: HMRC approved umbrella companies is a myth. So, do not fall for that statement. That is a key indication that the umbrella company in question is non-compliant.
They’ll also make use of untaxable payment methods as a part of their disguised remuneration arrangement such as:
The above list has been provided by the government to raise awareness.
They’ll operate on Pay As You Earn (PAYE) on some part of the amount paid to their employee keeping the remaining amount non-taxable which means that it would not be subject to PAYE.
How dangerous can a non-compliant umbrella company be?
The non-compliant umbrella companies and their illegal practices are caught by HMRC sooner than later. Umbrella company and the supply chain are then challenged in the Courts and Tribunals by HMRC.
You are then subject to:
This leads to financial damages as well as would harm your reputation. Needless to say, that you would be subject to paying heavy penalties for tax avoidance that would potentially include extra tax, NIC and interest.
What steps should you take before appointing an umbrella company?
If you are looking for an umbrella company you can trust, you can have a look at our list of umbrella companies. They’ll offer you a no-cost, no-obligation consultation.
Beware of the cloned companies impersonating reputed umbrella companies
Tricksters create clone companies of reputed umbrella companies. They offer "too good to be true" take-home pay to contractors and use the name of reputed companies to attract contractors. Always check on Companies House and on LinkedIn as well to see if they are clones. They normally offer 85% take-home pay and benefits which are clear indication of tax avoidance.
You can also look up on the official sites of FCSA or Professional Passport. Some reputed umbrella companies are their members and this would also help you differentiate between a clone and a real one.
How to report a non-compliant umbrella company?
If you suspect that there’s an umbrella company that is involved in tax avoidance, then you can anonymously report them to the government. The government encourages people to do that. To report a non-compliant umbrella company, click here.
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 umbrella companies who can help you with your queries, please feel free to review them. You can also write us an email at [email protected].