HMRC have released Spotlight 71: 'Warning for agency workers and contractors who are moved between umbrella companies'. This Spotlight highlights signs that agency workers and contractors should be aware of and that may indicate that the umbrella company they are engaged with is operating a tax avoidance scheme.
Spotlight 71 highlights that agency workers and contractors are responsible for ensuring that the correct tax and National Insurance (NI) is being deducted from their earnings by the umbrella company. Whilst not all umbrella companies are non-compliant, warning signs should not be ignored.
HMRC highlight the areas where taxpayers should be extra vigilant if they are engaged with an umbrella company.
Employment contract
Agency workers and contractors should ensure they understand the small print on their contracts and ask questions if there are any uncertainties.
The following may be warning signs:
- Being unexpectedly moved to a new umbrella company with little paperwork and at short notice.
- Signing paperwork with one company but being paid by a different one.
- Signing new employment contracts or different agreements in addition to the original contract.
Salary payments
Agency workers and contractors should be aware that if they are suddenly moved to a new payroll system, this may indicate that HMRC are enquiring into the old company.
The following may be warning signs:
- There are no changes to the current terms and conditions.
- The structure of the payroll operation, staff contact and communications does not change.
- There is no action to be taken by the agency worker or contractor.
Payslip information
Agency workers and contractors are encouraged by HMRC to regularly check payslips and report any concerns to HMRC.
The following may be warning signs:
- There are unexpected changes that occur, such as a change to the name of the employer.
- The payslip does not match the amount being paid into the employee's bank, or there is significantly less pay on the payslip than expected.
- There are incorrect tax and NI deductions.
- There is a move to a new online payroll system, and access to the old system is lost.
Schemes and promoters known for tax avoidance
HMRC Publish a list of named tax avoidance schemes and the people who promote them. HMRC highlight that the list is not exhaustive, and if a scheme is not listed, it does not mean it is HMRC-approved.
For any taxpayer who believes they may be engaged in a tax avoidance scheme, HMRC recommend contacting them for advice.
Useful guides on this topic
Agency workers: At a glance
What is the tax treatment of workers supplied through UK-based agencies, employment businesses or other staff supply intermediaries?
Agency Workers: Employment intermediaries' rules
Subscriber guide: How the Agency tax rules apply? What are the tax rules for Employment Intermediaries and Agencies? Are agency workers subject to PAYE?
IR35: Off-Payroll Working
You supply your personal services via your own PSC to an agency that supplies you to a small-sized end client
Off-Payroll Working At a glance
What is Off-Payroll Working? What is IR35? What are the tax rules for Off-Payroll Working or IR35? How do you check employment status? What is a personal service company?
Tax Avoidance Schemes
How do you spot tax avoidance schemes? What are the types of schemes available that should be avoided? What disclosure requirements are there? When are tax clearances needed?
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