HMRC publishes guidance on how to engage with UK umbrella companies HMRC publishes guidance on how to engage with UK umbrella companies

HMRC publishes guidance on how to engage with UK umbrella companies
07 Sep 2018

Her Majesty’s Revenue & Customs (HMRC) has just published official guidance on how employers should engage with umbrella companies in the UK, highlighting the problem with firms that operate tax avoidance schemes.

The guidance states: "Most employment agencies and umbrella companies operate within the tax rules. However, some umbrella companies and agencies promote arrangements that claim to be a ‘legitimate’ or a ‘tax efficient’ way of keeping more of your income by reducing your tax liability."

The information breaks down how arrangements work, how payments are made, the risks of using such arrangements, what should be checked and what to do if inadvertently involved in a tax avoidance scheme. The guidance also explains that any umbrella firm that offers contractors a high percentage net take home pay - perhaps 80% or more - is unlikely to be compliant.

Julia Kermode, chief executive of the Freelancer & Contractor Services Association (FCSA), told Staffing Industry: "While 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. 

She added that the FCSA had warned HMRC that there would be a “proliferation” of tax avoidance schemes as a direct result of its 2017 Off-Payroll reforms and that the organisation’s predictions had “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," Kermode said.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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Her Majesty’s Revenue & Customs (HMRC) has just published official guidance on how employers should engage with umbrella companies in the UK, highlighting the problem with firms that operate tax avoidance schemes.

The guidance states: "Most employment agencies and umbrella companies operate within the tax rules. However, some umbrella companies and agencies promote arrangements that claim to be a ‘legitimate’ or a ‘tax efficient’ way of keeping more of your income by reducing your tax liability."

The information breaks down how arrangements work, how payments are made, the risks of using such arrangements, what should be checked and what to do if inadvertently involved in a tax avoidance scheme. The guidance also explains that any umbrella firm that offers contractors a high percentage net take home pay - perhaps 80% or more - is unlikely to be compliant.

Julia Kermode, chief executive of the Freelancer & Contractor Services Association (FCSA), told Staffing Industry: "While 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. 

She added that the FCSA had warned HMRC that there would be a “proliferation” of tax avoidance schemes as a direct result of its 2017 Off-Payroll reforms and that the organisation’s predictions had “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," Kermode said.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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