HMRC turns the spotlight on Umbrella Companies

26 October 2018

Spotlight 45 which is part of a series of communications that aim to raise awareness of ‘Tax avoidance schemes that HMRC believes are being used to avoid paying tax due,’ aims to educate taxpayers on what to do if they have entered in to a scheme on the promise by an agency or umbrella company to reduce their tax liability and increase the take home pay.

The arrangements are likely to work in different ways, but the companies that use them claim they will help the taxpayer to retain more income and reduce the admin burden.

Signs that such a scheme is in operation may see payments being made as follows:

  • A small payment is made which has tax and National Insurance contributions deducted.
  • At the same time (or shortly after) a larger payment without tax and National Insurance contributions deducted is made.
  • The larger payment may arrive from a different account than the first payment, potentially from overseas, although not necessarily.
  • The payslip may show the larger payment separately and refer to it as something other than pay. No tax or National Insurance contributions have been deducted.

HMRC warn that they will not be able to advise a taxpayer as to whether a company or agency is promoting a legitimate arrangement and workers should always seek independent professional advice where they are not sure whether they may be involved in this type of tax arrangement.

HMRC have 3 strategic objectives which are detailed in their single departmental plan:

  • maximise revenues due and bear down on avoidance and evasion
  • transform tax and payments for our customers
  • design and deliver a professional, efficient and engaged organisation

It is under the first objective we see HMRC focus their attentions on agencies and umbrella organisations that encourage taxpayers in to tax avoidance. The message is clear, ‘if it seems too good to be true then it probably is’.