HMRC have issued Spotlight 55: ‘Comparison and broker websites marketing umbrella companies are not always what they seem’, as a guide to help workers who are considering using an umbrella company to make sure that it complies with the tax rules. 

This is an issue previously highlighted by HMRC in 2018 in their Spotlight 45: Umbrella CompaniesHMRC have now identified that whilst most umbrella companies are compliant with the tax rules, there are currently promoters of tax avoidance schemes who are using comparison and broker websites to introduce people to umbrella companies that are not compliant. These companies may:

  • Offer arrangements that claim workers can have higher take-home pay,
    • Which involve annuities, fiduciary receipts, credit facility shares, capital payments or advances or bonuses.
    • Which require the worker to sign an agreement other than an employment contract, which might be with the umbrella company or with a third-party entity or trust, based outside the UK.

HMRC recommend that, before a worker signs up to such an arrangement, they should:

  • Read the HMRC guidance aimed at contractors or agency workers.
  • Look to see if the umbrella company has a:
    • Company name.
    • Postal address.
    • Company registration number.
    • Ask for a full and transparent breakdown of all deductions the company will take from their salary, such as their own fees, Income Tax and National Insurance Contributions ( NICs).

HMRC advise that some comparison sites and third-party brokers may offer both compliant and non-compliant arrangements. These may be called ‘advanced’ or ‘enhanced’ umbrella services and come with statements such as:

  • ‘Retain 80% of your earnings after tax - safe and compliant’.
  • ‘We only use HMRC compliant umbrella companies that are independently reviewed’.
  • ‘QC approved’.

If you receive salary payments through different routes you may have already joined one of these arrangements. For example, if one part of your payment does not appear on your payslip, it may mean that full deductions for Income Tax and NICs have not been made. You should take professional advice and consider whether to withdraw from the arrangements and settle your tax affairs with HMRC.

HMRC’s policy is clear, they do not approve any umbrella companies and will always challenge tax avoidance arrangements, which may result in the worker paying extra tax, interest and penalties.

Links (subscriber guides)

Contractors & PSC Planning: What now?
What is the best advice, right now, for Personal Service Companies (PSCs) and contractors?

Agency and intermediary workers tax rules
A guide to reporting rules, penalties and the small print.

Spotlight 45: Umbrella companies
HMRC's tax Spotlight highlights that many employees and self-employed contractors are failing to realise that some staff agencies and umbrella companies are flouting tax anti-abuse rules.

External links

Spotlight 55: Comparison and broker websites marketing umbrella companies are not always what they seem 

HMRC guidance: Tax avoidance schemes aimed at contractors and agency workers

 

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