Here at ePayMe, we have written a number of blogs on compliant umbrella firms, knowing your supply chain and tax avoidance schemes. Now, HMRC has published their own guidance on how to reduce this risk.
As we’ve highlighted previously, off-payroll changes are bringing more workers under PAYE. However, some companies are finding unconventional and non-compliant ways to avoid this and pay less tax.
These tax avoidance schemes operate on disguised remuneration, reporting some earning as non-taxable and therefore not subject to PAYE. Some of the untaxed payment types used to increase take-home pay may include:
- Loans
- Grants
- Salary advances
- Capital payments
- Credit facilities
- Annuities
- Profit shares
- Shares and bonuses
- Amounts held in a fiduciary capacity
HMRC issued a warning “if you engage with an umbrella company operating an avoidance scheme, you become part of the supply chain of the scheme. Most of these schemes do not work and are successfully challenged by HMRC in the Courts and Tribunals, meaning they do not comply with the law.”
If you use a worker who is employed by an umbrella company engaging in tax avoidance, you risk tax compliance checks, penalties and liabilities. As a result, penalties are 100% of the fees receivable, and if identified as being an enabler, HMRC may also publish your details.
What can you do?
The steps that HMRC recommend in order to reduce your risk of using non-compliant umbrella companies are:
- Perform due diligence on your whole supply chain
- Find out what you need to do when you engage a worker
- Consider adding clauses in your contracts with umbrella companies
- Check payslips to make sure PAYE is being operated on the full amount received by the worker
- Be extremely cautious about working with umbrella companies that are offshore or offer financial incentives
- Check the umbrella companies details and returns filed with Companies House to make sure details such as its financial position, location and trading history are consistent with what you have been told
- Educate your workers by sharing information with them about tax avoidance schemes
Critics of unregulated umbrella companies:
Despite this guidance, HMRC faces criticism from some in the industry. The 2021 Autumn Budget is just around the corner, but there are calls for the government to enforce stricter measures.
Importantly, the industry needs legislative compliance measures and regulations in place.
“Tax avoidance and disguised remuneration schemes regularly appear on the chancellor’s agenda. Yet they are still allowed to thrive.
“So it does beg the question as to whether [Mr Sunak], the government, and HMRC are serious about addressing them,” Professional Passport CEO, Crawford Temple told ContractorUK.
At ePayMe we are a fully compliant payroll company, offering payroll and accounting services to independent contractors and recruitment agencies. You can rest assured that your payroll is in safe hands with us.
Contact us to discuss your requirements further.
Source:
CIPP
ContractorUK