Spotlight 60: Umbrella companies and tax avoidance

HMRC have released Spotlight 60: 'Warning for agency workers and contractors employed by umbrella companies'.  This highlights features of umbrella companies which could indicate that the arrangements amount to tax avoidance schemes.

Spotlight 60 highlights HMRC’s view that while many Umbrella Companies are tax compliant, certain arrangements amount to tax avoidance schemes and represent a financial risk to participants.

HMRC highlight the followings signs that suggest schemes may be tax avoidance:

• There is an element of Disguised Remuneration, that is money being received as a loan, salary advance, grant or annuity.
• Agreements in addition to an employment contract which could include an umbrella company or loan agreement.
• Short or brief employment contracts could be a sign of tax avoidance, particularly if in electronic form and with appendices which are difficult to access.
• Choice in respect of remuneration, with the option of higher remuneration if monies are taken in a certain way.
• If the documentation suggests that some payments are not subject to tax, which could be described as annuities, non-taxable loans, bonuses, capital payments or a credit facility.
• If there is a discrepancy between the amount received in your bank account and the amount shown on payslips.
• Umbrella companies retaining higher fees or margins.
• Umbrella companies being based outside the UK.

HMRC has also published a list of known tax avoidance schemes and those involved in marketing them.

Useful guides on this topic

Starting Work 5.  Agency or Umbrellas
Working via an agency: how to spot whether you are being paid correctly. This guide shows you what to expect.

Spotlight 45: Umbrella companies
HMRC have published a tax Spotlight: ‘Umbrella companies offering to increase your take-home pay’. It highlights the fact that many employees and self-employed contractors are failing to realise that some staff agencies and umbrella companies are flouting tax anti-abuse rules.

Disguised remuneration
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?

External links

Spotlight 60: Warning for agency workers and contractors employed by umbrella companies

Corporate report: Named tax avoidance schemes, promoters, enablers and suppliers