A leading compliance firm has warned umbrella company workers to be aware of the latest scam to hit the industry – in the form of ‘Ghost Payroll’ schemes.
Like many other schemes which unscrupulous providers have introduced into the contracting market over the past 15 or so years, it is typically the unsuspecting workers who end up paying the price when HMRC comes knocking.
How do Ghost Payroll schemes work?
Professional Passport – which carries out assessments on hundreds of payroll firms each year – says that Ghost Payroll schemes typically work as follows:
1. The worker’s ’employer’ channels payments via a second company – which is usually not mentioned in the employment contract.
2. The ’employer’ runs a separate (hidden) payroll which hides the true taxable income of its workers.
Many contractors will be unaware that anything unscrupulous has taken place, so you must check your payslips for irregularities.
Some pointers that you are using a non-compliant payroll provider include:
Your payment references may show a different payment source to the company named on your contract.
Your payslips don’t show the correct amount of taxable pay.
Your net take home pay may be close to the National Minimum Wage, rather than the correct amount.
According to Professional Passport, unscrupulous ‘umbrella brokers’ – who are usually just fronts for disguised remuneration schemes – market their schemes to high-end umbrella providers.
Although employers are responsible for deducting the correct amount of tax from their employees’ pay, HMRC often targets scheme users for backdated tax and penalties.
Contractors should be proactive and check their payroll arrangements
Crawford Temple, CEO of Professional Passport, said:
The Ghost Model is a new and concerning development for the umbrella industry. However, ignorance is no defence. The landscape has shifted. It’s no longer a question of if HMRC will detect these schemes, but when. Contractors need to be proactive in ensuring their payment arrangements are above board.
If you receive a letter from HMRC which suggests that you are using a disguised remuneration scheme, your first step should be to immediately remove yourself from the scheme.
By doing so, you can show that as soon as you became aware you took action, but it is difficult to use this defence where there is a track record of using multiple schemes.
How to spot a dodgy umbrella provider
The umbrella company industry is unregulated, and as a result, hundreds of unscrupulous providers have attempted to hoodwink workers over the years.
Don’t be tempted by unrealistic take-home pay calculations, and only use UK-based payroll providers.
Fortunately, there are several safeguards in place to ensure (as best you can) that your payroll provider is legitimate.
Is your umbrella company professionally audited (by a firm like Professional Passport)?
Does your umbrella company use third-party payroll auditing software?
Are there any strange or inconsistent entries on your payslips?
