HMRC has published several pieces of guidance to help contractors, freelancers and industry stakeholders understand how compliant umbrella companies should work.
Here are some of the most recent publications, supported with an overview of what they include:
Corporate report: Current list of named tax avoidance schemes, promoters, enablers and suppliers
HMRC has recently started naming and shaming tax avoidance schemes, promoters, enablers and suppliers.
In a regularly-updated corporate report, a list of over 30 payroll providers has been released, supported with each provider’s Scheme Reference Number and why HMRC consider them non-compliant.
As the list is updated regularly, it is worth checking it before you consider engaging with a payroll provider – to ensure they have not been added. To view the corporate report, please click here.
Guidance: Working through an umbrella company
In this guide, HMRC explains how compliant umbrella companies process the payroll of employees, including:
- What happens when a temporary worker seeks an assignment through a recruitment agency.
- How umbrella companies process Pay As You Earn (PAYE).
- How to interpret umbrella company payslips.
- An overview of the employee rights those who use umbrellas are entitled to.
Working through an umbrella company is very helpful, especially for those who are new to umbrella companies.
Guidance: Check your payslip if you work through an umbrella company
While most umbrella companies provide a stress-free and compliant payroll service, a few have been found to unethically retain more than just the margin (the only income an umbrella should retain for itself).
This piece of guidance explains exactly how an umbrella company should process your payroll (PAYE), and summarise the deductions that should appear on your payslip, including tax, National Insurance, employment costs, student loan repayments and pension contributions.
There is also a very helpful umbrella company payslip example which is worth examining – whether you are new to umbrella companies or you are currently using one for your payroll. To view the guidance, please click here.
Guidance: Check if you are at risk of tax avoidance
Sadly, a small number of umbrella companies are pretending to be compliant but are processing workers’ payroll unethically.
These tax avoidance schemes are usually engaged by accident, but there have been cases where contractors have purposely signed up with them to increase their take-home pay.
This guidance is unique because it requires answering questions about your payroll provider.
Once you have completed the necessary steps, you are advised whether HMRC considers your payroll provider compliant or if you may be potentially engaging with a tax avoidance scheme.
Advice is provided to help those engaging with an unscrupulous payroll arrangement. Please click here to use the online form and check if you may be using a tax avoidance scheme.
Guidance: Umbrella companies offering to increase your take home pay (Spotlight 45)
Spotlight 45 explains how some umbrella companies unethically boost employees’ take-home pay by helping them avoid the legal tax amounts and National Insurance Contributions.
In a nutshell, these umbrellas offer employees higher pay retention by paying them with a combination of the minimum wage (NMW) and an unusual tax-free payment.
Examples include combining the NMW with a loan payment that does not need to be repaid, shares in a business, investments, and credit. Compliant umbrellas will run payroll by following PAYE protocols.
Therefore, if you notice any unusual payments on your payslips, you should seek help from the government and change the payroll provider immediately. To find out more information about Spotlight 45, please click here.
Guidance: Tax avoidance schemes aimed at contractors and agency workers
This guidance provides a general overview of tax avoidance schemes and the risks of engaging with them.
Split into six sections, while the guide explains the basics of tax avoidance arrangements, it also provides helpful information for those who believe that they are currently using a tax avoidance scheme or have done in the past.
Please click here to view the guidance aimed at contractors and agency workers.
Check the government’s website for more information
It is worth checking the government’s website regularly to keep up to date with the latest guidance to help protect you from non-compliant umbrella companies and the associated risks of tax avoidance. The government is adding new content frequently, including guidance, corporate reports and Spotlight posts to help you identify specific types of tax avoidance schemes.