HMRC: Avoid Umbrellas Offering Increased Take Home Pay

HMRC: Avoid Umbrellas Offering Increased Take Home Pay


On the 23rd August 2018 HMRC finally released a long overdue spotlight guidance note focusing in on the dangers of engaging uncompliant umbrella company operators. The guidance specifically addresses the recent boom in unscrupulous providers offering loan schemes to reduce tax liabilities and therefore boost take home pay for contractors. Unsurprisingly the guidance concludes that contractors should avoid using such schemes and those that do not heed warnings, face very painful repercussions when they are inevitably caught by the ever tightening HMRC net. The Spotlight 45 guidance notes can be found in full below:

The publication of this spotlight feature is highly significant as it clearly indicates that these dodgy operators and their customers are now firmly within the sights of HMRC. For too long it has felt like this issue has been low on HMRC’s priority list but that no longer appears to be the case. The huge growth in these schemes over the past year due to IR35 turbulence has now triggered a tipping point. Look no further than the loan charge legislation due in April 2019 to see how seriously and severely HMRC plan to tackle the problem.

Reaction to the release of this official guidance has been overwhelmingly positive but many feel it does not actually go far enough. The concerns stem from the failure to explicitly make clear what a compliant umbrella operator actually looks like. 

Julia Kermode, chief executive of FCSA said: “The latest HMRC spotlight just out is very welcome and provides some sound advice.  HMRC rightly explains that any “umbrella” firm offering contractors a high percentage net take home pay, HMRC suggest 80% or more, is unlikely to be compliant. However, the guidance doesn’t go far enough; these types of arrangements are not true umbrellas firms but disguised remuneration schemes.  A true umbrella is an EMPLOYER of contractors, providing them with all the benefits of permanent employment, along with all the benefits and flexibility of working as a contractor.  It is also true that an umbrella employer will process 100% of gross pay through RTI payroll, meaning that contractors are not at risk of a high tax bill at a later date.  They work in exactly the same way as any other employer.

“Whilst it is good to see HMRC issuing a steer on umbrellas we are concerned that it could serve to put people off working with umbrellas entirely.  There are many compliant umbrella employers operating who provide a valued service with many benefits to the contractor, agencies, and end-clients.  We are sick and tired of our sector always being tarnished with the same brush due to the actions of non-compliant firms that do not provide professional employment services and are simply promoting dubious schemes.  We warned HMRC that we would see a proliferation of tax avoidance schemes as a direct result of the 2017 Off-Payroll reforms and our prediction has become a reality.  Recruiters must ensure that their supply chain is not facilitating tax avoidance otherwise they risk a corporate criminal offence under the Criminal Finances Act, so choosing compliant umbrella employers for their PSLs has never been more important.”

Whilst we share the FCSA concerns, our overwhelming opinion is that the guidance is a very welcome contribution if issued a bit later than expected. Any contractors considering utilising such schemes have been warned loud and clearly to avoid them. Established in 1994, FPS Group is one of the industries most trusted and compliant umbrella solution providers. Our umbrella solutions are fully HMRC compliant with full income tax and national insurance deductions made giving you unparalleled peace of mind. So save yourself the worry and choose FPS Group for your payroll.

Source: FCSA Welcomes Government’s Official Guidance On Umbrellas But Argues It Does Not Go Far Enough – 24th August 2018


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