Umbrella Company survey – Contractors asked to help HMRC

HMRC and the Treasury have called upon Contractors for evidence in their consultation process to better understand Umbrella Companies and their place within the market.

The consultation, which invites views from stakeholders on the role of Umbrella Companies and how they work with the tax system and employment rights law, closes on 22 February 2022. There are separate surveys for contractors and employers, and Umbrella Companies themselves can also submit evidence.

HMRC warns Contractors on tax avoidance schemes and ‘Umbrella cloning’

While the more aggressive tax avoidance schemes of the past decade have begun to disappear from the market, as many thousands of Contractors have been hit with retrospective tax bills thanks to loan or trust payments being classed as disguised income, the introduction of off-payroll legislation in early 2021 has led to several new ones reappearing, often duping honest Contractors into potential future issues, while thinking they are using legitimate companies.

‘Umbrella cloning’ has become more widespread over the past 12 months, with unscrupulous fraudsters using legitimate umbrella company details in order to clone their profile and lure unsuspecting Contractors to use them. While receiving their pay, all seems well, however the deductions for tax and national insurance are pocketed, rather than paid on to HMRC. HMRC offers a Contractor payslip checker to ensure that contractors are working with a legitimate Umbrella Company.

The wholesale IR35 changes from March of 2021 have led HMRC to admit finally that the Umbrella industry needs to be regulated, in order to prevent so much money bleeding from HM Treasury, and protecting Contractors from future liabilities.

Pressure from all factors of the industry on HMRC to rid the market of these disguised income schemes has been overwhelming, and the revenue have now sought evidence from the very people these changes will impact the most – Contractors themselves.

“The umbrella market has had the reputation from outside of being somewhat murky for a number of years now, since the big issues erupted with the likes of Montpellier and K2” says Andy McBride, director of Cleerly. “In more than a decade that I’ve worked in the Contractor space, there have been many schemes that have promised the earth and duped Contractors into signing up, only for the bubble to burst further down the line. It has been a constant concern for many Contractors over which Umbrella company to use when roles required one, especially since Q1 of 2021 when so many more have had the necessity to move away from Limited Companies.”

While initially so-called ‘dodgy’ Umbrella Companies were difficult to spot; the sheer number of legitimate companies now in the market make it slightly easier to differentiate between the good, the bad and the ugly.

Is your Umbrella Company too good to be true?

The days of Umbrella Companies offering 90%+ take home pay are long gone, thankfully, but some still remain. If you are told you can take home a huge percentage of gross pay, ask questions. If your provider charges exorbitant fees, query them. If you’re asked to sign loan or trust agreements, ask why. In short, if it seems too good to be true, it more than likely is.

With more and more high-profile personalities hitting the headlines after falling into the crosshairs of HMRC, from Gary Lineker, to Lorraine Kelly, to Sky Sports’ Dave Clark; the media focus has at least highlighted further the risks attached to such schemes.

“There was a huge, almost ‘Watergate’ moment some years ago when Jimmy Carr was caught using a K2 scheme to channel money via the Isle of Man in order to reduce income tax liability” continues McBride. “Then sometime after, Gary Barlow and others were targeted by the revenue. While undoubtedly these high-profile people are a drop in the ocean in terms of lost revenue, the very fact that household names came under fire for utilizing such schemes raised awareness of the pitfalls amongst Contractors. Now, the revenue has asked the Contractor community for help. This is an enormous opportunity for the industry to shape the future of legislation that will directly impact them. You may not get this chance again.”

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